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How are Social Security and Medicare tax withheld used to calculate the federal taxable income?

Are amounts shown in box 4 and 6 (Social Security and Medicare tax withheld) in the W2 form deducted at any point from the amount shown in Box 1 (wages, tips and other compensation) to calculate the federal taxable income?


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Accepted Solutions

How are Social Security and Medicare tax withheld used to calculate the federal taxable income?

They are not deducted at any point. Social security and medicare taxes cannot be subtracted form wages to determine taxable income. 

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6 Replies

How are Social Security and Medicare tax withheld used to calculate the federal taxable income?

They are not deducted at any point. Social security and medicare taxes cannot be subtracted form wages to determine taxable income. 

How are Social Security and Medicare tax withheld used to calculate the federal taxable income?

Thanks Texas Roger, this is helpful. Couple of follow up questions:

1) This means that amount shown in Box 1 of the W2 form (wages), includes both amounts shown in boxes 4 and 6 (i.e. Social Security and Medicare tax withheld). In other words, the amount shown in Box 1 has not been reduced by the amount of Social Security and Medicare tax withheld, is this correct?

2) If (1) above is correct, then it means that there is a double taxation (i.e. SS and Medicare taxes, and federal tax applied over the same amount shown in box 1 of the W2 form), is this correct?

3) Different but related: is the amount of money put aside in an FSA account to pay for child and dependent care expenses deducted from the taxable income used to calculate Social Security and Medicare taxes? In other words: [taxable income used to calculate SS and Medicare taxes] = [wages shown in box 1 of W2] less [amount of money put aside in an FSA account to pay for child and dependent care expenses]?

Appreciate any information you can share. Thanks!

How are Social Security and Medicare tax withheld used to calculate the federal taxable income?

1) Yes the amount in box 1 has not been reduced by the amount of social security and medicare tax withheld. Box 1 may be reduced by other things such as 401K contributions entered in box 12. That's why you may see that box 1 is less than box 2 and 3.
2) The tax you pay is an income tax paid on the amount of taxable income. Many filers pay no income tax if they have no taxable income or have credits that offset their tax. Those filers who pay these taxes are funding the federal budget,. Social security and medicare taxes are called payroll taxes and are totally different taxes that all filers are required to pay. Those taxes fund the social security retirement benefits and medicare insurance that you get when you retire at a certain age.
3) Nothing reduces the amount of income that social security and medicare taxes are calculated from. There is a limit on how much income you must pay social security taxes on. For 2018 you had to pay 6.2% social security tax on up to $128,400 of income. Your employer matches that amount of tax. The medicare tax is 1.45% and there is no income limit. Your employer also matches that amount. There is an additional 0.9% medicare tax that high income employees must pay. Self employed filers must pay both the employee and employer's portion of the taxes so they must pay 15.3% of their net income.

How are Social Security and Medicare tax withheld used to calculate the federal taxable income?

Thanks again Texas Roger - appreciate your help on this.

Regarding your answer in (3), I am confused because I have found conflicting information - please see the info below, and based on this, can you still confirm that amounts contributed to an FSA for dependent care ARE in fact subject to Social Security tax and Medicare tax?

Please, take a look at information below, which seems to suggest otherwise:

1) "Amounts contributed to an FSA are not subject to federal income tax, Social Security tax or Medicare tax, allowing your medical or dependent care expenses to be paid with pre-tax..."

<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4267053-do-we-pay-tax-on-forfeited-dependent-care-fsa">https://ttl...>

2) "Whether pretax deductions count as Medicare wages depends on the type of deduction. Pretax benefits include those offered under a cafeteria – or Section 125 – plan, such as medical, dental, vision, life, accident and disability insurance; and flexible spending accounts such as dependent care, and health savings and adoption assistance reimbursement accounts. Also, qualified retirement contributions, transportation expenses and educational assistance may be pretax deductions.

Most of these benefits are exempt from Medicare tax, except for adoption assistance, retirement contributions, and life insurance premiums on coverage that exceeds $50,000"

<a rel="nofollow" target="_blank" href="https://finance.zacks.com/pretax-deductions-count-medicare-wages-3522.html">https://finance.zacks.co...>

3) "By putting $5,000 into your Dependent Care FSA, you saved 25% ($5,000 x 25% = $1,250) as well as 7.65% for Social Security and Medicare ($5,000 x 7.65% = $383) - this is a total of $1,633 saved before the credit"

<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/3293193-dependent-care-expense-account-reported-in-box-10-as-depen...>

4) "Dependent Care FSAs are also sheltered from the 7.65% Social Security and Medicare tax."

<a rel="nofollow" target="_blank" href="https://havenlife.com/blog/fsa-or-tax-credit-how-you-can-save-on-child-care/">https://havenlife.com/...>

5) "Most plan contributions are made directly through payroll deductions. Your total annual estimated dependent care costs are divided by the number of paychecks in a year and that amount is taken directly off the check. This reduces taxable income on every paycheck and spreads the benefit throughout the year. Federal and state taxes, as well as Medicare and Social Security deductions, are calculated on the income net of contributions"

<a rel="nofollow" target="_blank" href="https://www.investopedia.com/articles/pf/12/fsa.asp">https://www.investopedia.com/articles/pf/12/fsa...>

Despite information mentioned above, I do think that if someone makes well above the $128,400 limit subject to Social Security tax, then having an FSA would not reduce or provide any shelter from the 6.2% Social Security Tax, because even with the FSA deduction, that person would have reached the $128,400 limit anyway. However, for the Medicare Tax, information above seems to suggest that amounts contributed to an FSA for dependent care WOULD NOT be subject to Medicare tax.

Thanks again for any clarification you can provide on this!

How are Social Security and Medicare tax withheld used to calculate the federal taxable income?

I stand corrected. I should have researched it instead of going from memory. Glad you were able to find the correct answer.

How are Social Security and Medicare tax withheld used to calculate the federal taxable income?

No worries. Thanks for the clarification! appreciate your help.
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