Social Security Taxes & Benefits

8/13/2019 Social Security Taxes & Benefits

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Social Security Taxes andBenefits


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Millions of dollars in 2008


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Finance: FICA Tax


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From Virginia Reno, National Academy on Social Insurance


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From Virginia Reno, National Academy on Social Insurance


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U.S. Treasury

FICATAXES

OASDI Trust Fund

Valued at $2.4 trillionat the end of 2008

Currently, we collect more in FICA taxesthan we pay out in benefits and expenses.


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Projections in 2010 and beyond are based on intermediateassumptions


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Fat-Cat Assemblyline worker

Fast foodworker

How do OASDI benefits and taxes influenceworkers in different income groups?

A Hoya fan!


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FICA Tax

What would a fat-catpay?

If he earns $10,000,000annually, his FICA tax would be:12.4% of the first $106,800 =$13,432

Plus2.9% of the entire amount =$290,000Total FICA Tax = $303,243Half of this $151,622 iswithheld


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FICA Tax

What would an assemblyline worker pay? If he earns near the U.S. median

income, about $45,000 annually, his FItax would be:

12.4% of $45,000 = $5,580Plus2.9% of $45,000 = $1,305Total FICA Tax = $6,885$3,442 is withheld


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FICA Tax

What would a fast-foodworker pay?

If he earns the U.S. minimum wage(currently $7.25 per hour) working full time , all

year around (2200 hours), his income will beabout $15,950 annually, his FICA tax would be:12.4% of $15,950 = $1,978Plus2.9% of $15,950 = $463Total FICA Tax = $2,441, $1,220 is

withheld


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FICA is a regressive tax

The Fat-Cat earns$10,000,000 annually and pays

$303,243 in FICA taxes. His taxrate is about 3%.Withholding is about 1.5%.

The assembly lineworker earns $45,000 and

pays $6,885 in FICA taxes.His tax rate is 15.3%.Withholding is 7.65%.

The fast-food workerearns $15,950 and pays

$2,441 in FICA taxes. His trate is 15.3%.Withholding is 7.65%.


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Calculating benefits: at thenormal retirement age


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Suppose the Fat-Cats AIME is$7,000.His benefit is:90% of $711 = $640, plus

32% of ($4,288-$711) = $1,145,plus15% of ($7,000-$4,288) = $407.Total OASI benefit : $2,192 permonth


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Suppose the Assembly line workersAIME is $3,000.His benefit is:90% of $711 = $640, plus

32% of ($3,000-$711) = $732.Total OASI benefit : $1,372 per month


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Suppose the fast food workers AIME is$1,000.His benefit is:90% of $711 = $640, plus

32% of ($1,000-$711) = $86.Total OASI benefit : $726 per month


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Benefits are progressive

Average monthlyearnings were $1,000.Monthly benefit was

$726.Replacement rate:benefit/income = .73


$1,372.Replacement rate:benefit/income = .46


$2,192.Replacement rate:benefit/income = .31


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Social Security Taxes & Benefits

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