We not sure if you’re asking about how FICA (or self-employment) tax on your work wages is calculated, or how much income tax should be deducted from your Social Security payment, so we’ll cover both:
The 7.65 percent FICA tax withheld by your employer is made up of two components: 6.2 percent for Social Security and 1.45 percent for Medicare Part A.
Your employer contributes the same amount on your behalf. This is a regular sum that all American employees pay, which allows you to collect Social Security benefits when you retire and enrol in Medicare Part A for free after you reach the age of 65 if you have earned enough credits.
You pay a “self-employment tax” on your net earnings instead of a FICA tax if you are self-employed, and you must pay both the employee and employer halves of the tax (15.3 percent ).
The main exception is that some states in the United States have chosen to opt out of the Federal Social Security programme, exempting some state employees from the Social Security element of the FICA tax (they must still pay the Medicare Part A portion).
These percentages are determined by law passed by Congress and will not change unless new legislation is passed by Congress.
Determining how much income tax to withhold from your Social Security benefits should be reviewed with a knowledgeable Tax Advisor who has access to all of your financial information.
Your recommended tax withholding rate for income tax purposes is determined by your total taxable income and the tax rate that comes from that income (after taking into account your dependents and filing status (single or married)).
It is voluntary to have income tax deducted from your Social Security payment, but if you do, you must submit IRS form W-4V to your local Social Security office.
You can decide that 7 percent, 10%, 12 percent, or 22 percent of your SS benefit be withheld for income tax purposes on Form W-4V. The IRS form W4-V can be found at https://www.irs.gov/pub/irs-pdf/fw4v.pdf.
Depending on your total income from all sources, the IRS may assess income tax on a percentage of your Social Security benefits.
Your “combined income” is equal to your AGI on your tax return plus 50% of any Social Security benefits you got during the tax year, plus any additional non-taxable income you may have earned.
Your SS benefits are taxed at your regular IRS rate and according to your tax filing status.
If you file your tax return as a “single” and your total income from all sources exceeds $25,000, half of your SS benefits will be included in your taxable income.
If your total taxable income from all sources as a single filer exceeds $34,000, up to 85% of your SS benefits will be taxable.
If your filing status is “married-filing jointly” and your combined income is more than $32,000, 50 percent of your Social Security benefits will be included in your taxable income for the tax year.
If your combined income as a couple filing “married/jointly” exceeds $44,000, up to 85% of your SS payments received during the tax year forms part of your overall taxable income.