How much are you going to pay in taxes on your income in 2021 and where do those withholdings from your paychecks go?

Your money goes to pay for Social Security and Medicare. We tell you how it works and what percentages we are talking about

Maybe when you pay taxes, all you know is that they withhold a certain amount of what you earn on each paycheck, but little do you think about where that money goes and how it works.

The income to the payroll is those that you pay for your income, which ranges from your usual salary, to a bonus, extra payment, that is, all the income that a company has.

These withholdings usually go to two institutions: the first, to Social Security, and the second to Medicare.

Each of these has its own rates, which are different from each other, act differently, and have different characteristics.

In an article published by the It Independent Tribune, each of them is explained.

For starters, Social Security taxes are also known as OASDI. Although they are also known as old-age, survivors and disability insurance. Although by far the most common form is Social Security.

How much do they withhold from you for Social Security?

A rate of 6.2% of the taxable payroll is applied, that is, the one that adds up all the taxpayer’s income. This percentage applies to both employees and their employers.

As explained by It Independent Tribune, Social Security tax is applied each year to a certain amount of earned income.

For 2021, the upper limit, known as the Social Security wage base, is $ 142,800.

It must be clarified that this 6.2% withholding will only be applied to your income that is active, that is, those you get from a job, pensions, for example, are not subject to Social Security taxes.

As the Social Security tax can only be applied to the first $ 142,800 dollars that you earn from your earned income and the rate that will be withheld is 6.2%, then an employee will pay a maximum in this area, the amount of $ 8,853.60 dollars during 2021 .

How Medicare taxes work

This has a lower taxable rate than Social Security. Its rate is 1.45% for each employee and employer.

This tax does not have an income limit either. But, people who have incomes greater than $ 200,000 dollars and who in their declarations that they file together, exceed $ 250,000 dollars, will have to pay an extra tax to Medicare for 0.9%

The It Independent Tribune explains it with this example: if you file an individual tax return and have $ 300,000 of salary income in 2021, you will pay 1.45% Medicare tax on your first $ 200,000 and 2.35% ( 1.45% plus 0.9%) on the remaining $ 100,000.

How taxes work if you are self-employed

Freelancers pay both the employer and the employee, this is how it works. This means they will pay a 12.4% Social Security tax rate on all income and an additional 0.9% Medicare tax on income over $ 200,000 or $ 250,000 if they file a joint return.

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