Top 6 Strategies to Protect Your Income from Taxes

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This is an archival or historical document and may not reflect current policies or procedures. One common set of such misinformation involves the history of the Social Security system. Like all taxes, this has never been voluntary. From the first days of the program to the present, anyone working on a job covered by Social Security has been obligated to pay their payroll taxes.

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In the early years of the program, however, only about half the jobs in the economy were covered by Social Security. Thus one could work in non-covered employment and not have to pay FICA taxes and of course, one would not be eligible to collect a future Social Security benefit.

In certain cases, for lower earners, a small personal allowance tax free amount can be claimed. Residents Residents as a rule pay tax on the basis of the aforementioned progressive rate scale. Non-residents Non-residents, similarly to residents, pay tax on the basis of the progressive tax rate scale if they work under an employment contract. Specific income sources for example, personal service contract, or management contract are subject to 20 percent flat rate final tax.

In that indirect sense, participation in Social Security was voluntary. However, if a job was covered, or became covered by subsequent law, then if a person worked at that job, participation in Social Security was mandatory.

The text of the law and the tax rate schedule can be found elsewhere on our website.

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Myth 3: President Roosevelt promised that the money the participants elected to put into the program would be deductible from their income for tax purposes each year There was never any provision legal earnings on the Internet without contributions law making the Social Security taxes paid by employees deductible for income tax purposes. Myth 4: President Roosevelt promised that the money the participants paid would be put into the independent "Trust Fund," rather than into the General operating fund, and therefore, would only be used to fund the Social Security Retirement program, and no other Government program The idea here is basically correct.

However, this statement is usually joined to a second statement to the effect that this principle was violated by subsequent Administrations.

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However, there has never been any change in the way the Social Security program is financed or the way that Social Security payroll taxes are used by the federal government. From its inception, the Trust Fund has always worked the same way.

The Social Security Trust Fund has never been "put into the general fund of the government.

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Starting in due to action by the Johnson Administration in the transactions to the Trust Fund were included in what is known as the "unified budget. This is sometimes described by saying that the Social Security Trust Funds are "on-budget.

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But whether the Trust Funds are "on-budget" or "off-budget" is primarily a question of accounting practices--it has no affect on the actual operations of the Trust Fund itself. Myth 5: President Roosevelt promised that the annuity payments to the retirees would never be taxed as income Originally, Social Security benefits were not taxable income.

Personal Income Tax (PIT)

This was not, however, a provision of the law, nor anything that President Roosevelt did or could have "promised. The Treasury rulings can be found elsewhere on our website.

  • The Bottom Line Income is taxed at the federal, state and local levels, and earned income is subject to additional levies to fund Social Security and Medicare, to name a few.
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In Congress changed the law by specifically authorizing the taxation of Social Security benefits. This was part of the Amendments, and this law overrode the earlier administrative rulings from the Treasury Department. A detailed explanation of the Amendments can be found elsewhere on our website. Historical Links.

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