The Advantages of Taking FICA Out of Social Security Benefits

by Eric Feigenbaum

The Federal Insurance Contribution Act (FICA) allows workers and anyone with a regular earnings or income to have federal taxes withheld from their paycheck. That way, when tax time rolls around, they don't have to find the money or write a check because payment has already been sent to the federal government on their behalf. In fact, many receive refunds for over withholding. Recipients of Social Security benefits have this same option, which can make their annual tax filing easier.


Not all Social Security recipients owe taxes. Generally, those who receive Social Security benefits as their primary income don't owe federal income tax. However, people with multiple sources of income may have an annual household income large enough to be subject to taxation despite receiving Social Security. That's when FICA deductions are both possible and helpful.


FICA deductions form what is essentially a savings account for owed taxes. Rather than setting aside earnings to pay for taxes, the Social Security Administration puts aside a small amount each paycheck. FICA deduction money gets held in a special payroll account that is then sent to the Internal Revenue Service at the beginning of each calendar year. In most cases, by the time a person files annual income tax, the IRS already has the tax payment.


Because the Social Security Administration allows beneficiaries to select their rate of FICA withholdings, people frequently overestimate and have more tax money withheld than required. After filing a federal income tax return, the IRS refunds any over payments. Many taxpayers enjoy not only the security of knowing they won't owe, but the occasional surprise of getting money back.


Those who want FICA withheld from their Social Security benefits can decide on the amount. The Social Security Administration allows beneficiaries to withhold 7, 10, 15 or 25 percent of their monthly payments. Some beneficiaries need only a small amount, as their income falls barely into the taxable range and is taxed at a low rate. Others who earn considerably more than their Social Security income can choose the maximum to ensure they are prepared for tax time.

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