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Social Security Tax Exemptions

January 13, 2011

The maximum income from salaries and wages which is subject to Social Security tax keeps going up. For 2010 (tax year), many taxpayers will pay more Social Security tax than ever before. There are, however several kinds of payments which are not subject to Social Security tax. Here are some examples:

  • Social Security benefits payments are exempt from Social Security tax, although they may be subject to income tax depending on your total income.
  • Company loans to a stockholder or an employee are not subject to Social Security tax, but documentation showing that the loan will be repaid must be available. If the IRS decides that the loan will not be repaid, it can impose Social Security tax on the amount borrowed.
  • Wages you pay to under-age (18) children are also exempt from Social Security tax, but only if your business is a sole proprietorship. If your business is a corporation, all wages are subject to Social Security tax.
  • Fringe benefits are not subject to Social Security tax. Typical examples of exempt fringe benefits include employer-paid health insurance premiums and employer contributions to qualified retirement plans.
  • Payments received that are not compensation for services rendered are exempt from the tax. Such payments include interest, dividends, rents, pensions, inheritance, and gifts.

Let GAI (www.gunwel.com) help you with your business needs. We can show youthe best possible scenarios to improve your bottom line. Call us today at 212-979-6830 or stop by for a visit. See you soon.

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