That headline is not what Uncle Sam wants to see today.
The New York Times reports that this year the Social Security system will pay out more in benefits than it receives in payroll taxes. That wasn't supposed to happen, per government estimators, until 2016.Stephen C. Goss, chief actuary of the Social Security Administration, tells the paper that the economy is a big reason for the earlier-than-expected arrival of this crucial tipping point.
Social Security payments have risen more than expected during the downturn because people lost jobs applied for benefits sooner than they had planned. While that was happening, money into the program dropped sharply because there are fewer paychecks to tax.
We faced a similar crisis back in the early '80s and we've long known something else would have to be done.
Social Security officials promise that the program will not run out of money until about 2037. As someone who'll be collecting benefits sooner than many of you readers, I hope that fiscal prediction is better than the last one!
Still, Social Security's financial troubles will get a lot of political play in this election year. So what else is new?
Recovering excess FICA withholding: While there obviously are revenue problems for Social Security, some folks find that they've done more than their share to bolster the program.
The Federal Insurance Contributions Act, better known as that FICA line on your pay stub, is the payroll tax collected from both employees and employers to fund Social Security and Medicare.
Workers have 6.2 percent of their pay taken out for Social Security each pay period. Bosses match that percentage amount. The tax is withheld until a worker's income exceeds the annual earnings threshold. For 2009 (and 2010 because of low inflation) that level is $106,800.
Once you earn more than that (lucky you!), Social Security tax is no longer collected.
Sometimes,though, you overpay inadvertently. Say you had two (or more) jobs last year. Each payroll office took out the appropriate Social Security each pay day. Each had no idea what the other workplace was doing.
When Dec. 31, 2009, rolled around, your combined income at all your jobs came to more than $106,800. In that case, you likely overpaid into Social Security.
You can get that amount back as a credit when you file your tax return. Details on the process are in today's Daily Tax Tip, Recovering excess FICA payments.
No Medicare max: What about that other part of FICA, the Medicare tax? That's another 1.45 percent payroll tax, again collected on your wages and matched by your employer.
But there's no income limit on this tax. So the amount of that tax you paid on income more than $106,800 stays in the system.
Don't fall for the scam: Collection of overpaid Social Security withholding also debuted this year on the IRS' annual list of Dirty Dozen tax scams.
With this scam, the IRS says both the income and withholding amounts are sometimes incorrect.
False filings for refunds certainly aren't helping the overall Social Security situation.
Each weekday (except federal holidays, but we're done with those for tax season) through April 15, we post a new tip.
When the tip goes live on Bankrate, I put a link to it in the right corner of the ol' blog. I'm usually a bit late. I'm a night owl, so I don't start my day as early as most folks. But it'll eventually show up there.
You also can see the full list, also updated each weekday, in the comprehensive Daily Tax Tips for 2010 page.Related posts:
- Roth IRAs and your retirement income
- Are you ready for a Roth conversion?
- Getting your rocking chairs on the same porch
- Get ready to retire
- Handy retirement plan rollover chart
- 401(k) Do's and Don'ts
- Taxes and the older filer
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