 Capital
gains and Social Security taxes
|  Dear
Tax Talk,
I think that in 2005, we (singles) pay Social
Security tax of 7.65 percent on the first $90,000 of earned income.
I earn less than this, and am thinking about selling some appreciated
stock, and am wondering if the gain on a stock sale is also subject
to Social Security taxes up to the $90,000? -- Joe
 Dear
Joe,
The annual FICA limit is the amount of wages
from a single employer that is subject to the Social Security tax,
which is 6.2 percent. The remaining 1.45 percent is the Medicare
tax. There is an annual limit on wages subject to the 6.2 percent
Social Security tax. If you exceed the limit, your employer will
stop withholding Social Security tax. The limit is adjusted annually
for inflation, and in 2005 the maximum wages subject to Social Security
tax is $90,000. There is no limit on wages subject to Medicare tax.
Social Security wages are the same for singles or
married couples. The only difference is that the husband and wife
are subject to the same cap that would apply if they were unmarried.
For example, if the husband earns $150,000 and the wife earns $30,000,
the husband would pay 6.2 percent on $90,000 in wages and the wife
would pay the same rate on $30,000 in wages.
If you have more than one employer during the year,
each employer is responsible for taking out Social Security tax
regardless of your prior earnings during the year. If your total
Social Security wages for the year exceed $90,000 in 2005, you can
claim any excess Social Security tax withheld as a credit on your
2005 Form 1040.
Selling appreciated stock that you own, personally,
would not be subject to Social Security tax, as it is not considered
wages. However, if you're referring to employee stock options that
have appreciated, that appreciation is considered additional salary
and would be included in your wages, subject to Social Security,
Medicare and federal and state income tax withholding. Of course,
any appreciation in sold stock options that, when combined with
your salary, exceeds $90,000 would not be subject to the 6.2 percent
Social Security tax.
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