Question

2a. What is the Social Security tax rate on the 100,000th dollar you earn in the labor market in a year? 2b. What is the Social Security tax rate on the 200,000th dollar you earn in the labor market in a year? 2c. What is the Social Security tax rate on the $100,000th dollar you earn outside of the labor market in a year?

Answer 1

2a. As of 2020, the combined or aggregate social security tax rate is 12.4% which is equally divided between the employees and the employers implying that the employers pay 6.2% of the total tax rate and the rest 6.2% is paid by the employees. The maximum limit up to which the social security tax rate is applicable is the annual income of $137,700. Therefore, the aggregate social security tax rate on the 100,000th dollar earned in the labor market in a year would 12.4% with 6.2% paid by the employee and the rest 6.2% paid by the employer since it is within the annual income limited which is subject to social security tax.

2b. The annual income above $137,700 is exempted from or is not subject to social security tax and hence, if any individual earns up to 200,000th dollars annually he or she would not have to pay any social security tax above the limit of $137,700 annual income up to $200,000 and would only pay 6.2% of the aggregate 12.4%social security tax rate up to the annual income of $137,700.

2c. The earnings outside the conventional labor market such as earnings on lotteries, property inheritance, or any uncounted/unauthorized or illegal income such as gambling. Hence, any such earning is usually not subject to social security tax but however, many of these authorized earnings are not free or exempted from both federal and state income tax and have to be filed in compliance with the relevant tax regulations of the Internal Revenue Services or IRS.