U.S. Tax Preparation Worldwide   James Maertin CPA

 
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Tax Guide 

IRS Tax Law Changes

Americans Abroad

Capital Gains, Interest and Dividends

Deductions

Dependents

Education Credits, Scholarships

Foreign Bank Reporting

Foreign Nationals

Social Security, Medicare, Self Employment Tax

State Taxes

Tax Deadlines, Extensions, Late Payments, Estimated Tax

Tax Resident, Nonresident, Dual Status

Other Topics
 

Social Security, Medicare and Self Employment Tax


Withholding Rates for Wages/Salary

The current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total up to $128,400 of wages (2018). The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total, with no wage limit for Medicare tax. 

Self Employment Tax

If you are self employed, your payments of social security and Medicare taxes are referred to as self employment tax.  You must pay self-employment tax if your net earnings from self-employment are at least $400.  You will pay the full amount of social security and Medicare tax (12.4% and 2.9% respectively) based on your net self employment income, although 1/2 of the self employment tax can be deducted on Form 1040.  For 2018, the maximum amount of net earnings from self-employment that is subject to the social security part of the self-employment tax increases to $128,400. All net earnings are subject to the Medicare part of the tax.

Additional Medicare Tax Withholding Rate

An individual is liable for Additional Medicare Tax of 0.9% if his/her (and spouse if filing jointly) wages, compensation, or self-employment income exceed the threshold amount for the individual's filing status (see table). 

Filing Status

Threshold Amount

Married filing jointly

$250,000

Married filing separate

$125,000

Single

$200,000

Head of household (with qualifying person)

$200,000

International Social Security Agreements (Totalization Agreements)

 

The United States has entered into social security agreements with foreign countries to coordinate social security coverage and taxation of workers employed for part or all of their working careers in one of the countries. These agreements are commonly referred to as Totalization Agreements. Under these agreements, dual coverage and dual contributions (taxes) for the same work are eliminated. They generally make sure that social security taxes (including self-employment tax) are paid only to one country. 

U.S. Citizens and Resident Aliens Abroad - Employees:

In general, U.S. social security and Medicare taxes do not apply to wages for services you perform as an employee outside the United States unless one of the following exceptions applies.
1. You perform the services on or in connection with an American vessel or aircraft and either:
           a. You entered into your employment contract within the United States, or
           b. The vessel or aircraft touches at a U.S. port while you are employed on it.
2. You are working in one of the countries with which the United States has entered into a bilateral social security agreement.
3. You are working for an American employer.
4. You are working for a foreign affiliate of an American employer under a voluntary agreement entered into between the American employer and the U.S. Treasury Department.

For more information, see IRS Publication 54

U.S. Citizens and Resident Aliens Abroad - Self Employment:

If you are working in one of the countries with which the United States has entered into a bilateral social security agreement, in general self-employed persons who are subject to dual taxation will only be covered by the social security system of the country where they reside.

Foreign Nationals

The following foreign nationals are exempt from paying social security and Medicare tax

The exemption does not apply to the following students, teachers and trainees who become resident aliens for tax purposes (filing Form 1040).  See IRS Exempt Individuals.

a.  Teacher or trainee on a J-1 or Q-1 visa if you were exempt as a teacher, trainee, or student for any part of 2 of the 6 preceding calendars years (unless certain exceptions are met).

b.  Students on F-1, J-1, M-1, or Q-1/Q-2 who have been exempt as a teacher, trainee, or student for any part of more than 5 calendar years (unless certain exceptions are met).

See https://www.irs.gov/individuals/international-taxpayers/foreign-student-liability-for-social-security-and-medicare-taxes

Refund of Social Security & Medicare Taxes Withheld in Error

If social security or Medicare taxes were withheld in error from pay that is not subject to these taxes, contact the employer who withheld the taxes for a refund.

If you are unable to get a full refund of the amount from your employer, file a claim for refund with the Internal Revenue Service on Form 843, Claim for Refund and Request for Abatement. Attach the following items to Form 843:

File Form 843 (with attachments) with the IRS office where your employer's Forms 941 returns were filed. You can locate the IRS office where your employer files his Form 941 by going to Where to File Tax Returns.