4.5 Other Income Taxes
OASDI (Social Security)
Social Security is funded primarily through payroll taxes called Federal Insurance Contributions Act tax (FICA) or Self Employed Contributions Act Tax (SECA). Tax deposits are collected by the Internal Revenue Service (IRS) and are formally entrusted to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, the two Social Security Trust Funds. These two trust funds purchase government securities, the interest income from which is used presently to fund the monthly allocations to qualifying citizens. With a few exceptions, all salaried income, up to an amount specifically determined by law (see tax rate table below), is subject to the Social Security payroll tax. All income over said amount is not taxed.[1]
| Employee Rate | Employer Rate | Income |
| 6.2% | 6.2% | Up to $142,800 |
| 0.0% | 0.0% | Over $142,800 |
Let’s try one together…
- Albert = $72,500
- Bella = $195,000
- Collette = $525,000
Answers: $4,495 (6.2%); $8,853.60 (4.54%); $8,853.60 (1.69%)
Medicare Tax
There is also a tax that funds the Medicare system. Unlike Social Security, there is no wage limit. Additionally, there is an additional tax at higher incomes for employees only. The brackets are below:
| Employee Rate | Employer Rate | Income |
| 1.45% | 1.45% | Up to $200,000 |
| 2.35% | 1.45% | Over $200,000 |
Let’s do one together…
- Albert = $72,500
- Bella = $195,000
- Collette = $525,000
Answers: $1,051.25 (1.45%); $2,827.50 (1.45%); $10,537.50 (2.01%)
State and Local Income Taxes
Just as the federal government collects taxes on income, many state and local governments do as well. This varies from one state to the next. For example, Florida does not charge an income tax. Additionally, the way states charge taxes will vary from one to the next. Some states rely more on property taxes and sales tax. Others on income taxes. Others on fees (for example: Florida charges a variety of excise taxes on tourist activities.)
When a state charges an income tax, they decide the structure of the tax system. Many states have a system similar to the federal government with deductions and credits and a tiered tax system.
Pennsylvania on the other hand has a flat tax rate of 3.07%. Additionally, there are very few deductions and credits. Therefore, most of the time, you will have paid exactly your tax due for the year and will neither owe money nor be due a refund. Many localities in Pennsylvania also charge a 1% local income tax which is also a flat percentage. Some localities can charge more (Pittsburgh charges 3.0%). Your actual rate is split between the rate of your home address and the rate of your work address.
- Social Security (United States). (). In Wikipedia. https://en.wikipedia.org/wiki/Social_Security_(United_States) ↵
