Feedback requested on new article: Payroll tax

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fyre4ce
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Feedback requested on new article: Payroll tax

Post by fyre4ce » Fri May 10, 2019 10:08 pm

https://www.bogleheads.org/wiki/User:Fy ... ayroll_tax

In parallel with some other edits I'm working on, I realized there was no article about payroll tax, so I created one. Payroll taxes often get ignored when thinking about investments, because income tax-deductible retirement contributions are not deductible against payroll tax, and payroll tax isn't assessed against retirement withdrawals. But, many lower-income workers will pay more payroll tax than income tax, so I think it's good to cover it on the wiki. Feedback appreciated!

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Phineas J. Whoopee
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Re: Feedback requested on new article: Payroll tax

Post by Phineas J. Whoopee » Sat May 11, 2019 10:52 am

What one gets from social security retirement benefits can't reasonably be called return, not even return of capital. One has no SS capital to receive a return on. I think the concept of how much one might realize is worthwhile, but shouldn't be predicated on the idea it's equivalent to an investing account. It is, literally, an annuity. At most it should be compared to single premium immediate annuities, and even there it isn't one-to-one-onto.
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Thesaints
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Re: Feedback requested on new article: Payroll tax

Post by Thesaints » Sat May 11, 2019 6:15 pm

Well, the social security program also provides disability benefits, so calculating a rate of return ignoring those is not too correct.

gclancer
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Re: Feedback requested on new article: Payroll tax

Post by gclancer » Sat May 11, 2019 7:14 pm

I would expand the paragraph discussing HSA contributions, or (probably better) create an entire new section discussing Section 125 Cafeteria Plans. That section could include discussion of HSA contributions; health/dental/vision insurance premiums; health care FSA and LEXFSA contributions; and dependent care FSA contributions.

I’m not sure how worthwhile a discussion of social security as an investment is since the tax is compulsory for most, but you’ve devoted a good amount of effort to that section so certainly no harm in keeping it. The main people that would apply to would be S Corp owners who have some level of control over their payroll tax, and I don’t know a single S Corp owner that is analyzing the ROI on their social security contributions, they’re all just trying to minimize their payroll tax - probably since Medicare tax is such a big drag on Social Security ROI.

iasw
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Re: Feedback requested on new article: Payroll tax

Post by iasw » Sat May 11, 2019 11:04 pm

This was timely for me, as I had been wondering about payroll taxes and how things like a 401k don't affect them. Everything was clear, and I was surprised to learn that an employer's overpayment of social security tax would not be refunded.

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Watty
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Re: Feedback requested on new article: Payroll tax

Post by Watty » Sun May 12, 2019 12:25 am

It would be good to also note that some jobs are not under Social Security. For example off the top of my head;

1) Some ministers.
2) Some state or local employees
3) Some college students that employed by their university.

There may be others too.

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fyre4ce
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Re: Feedback requested on new article: Payroll tax

Post by fyre4ce » Sun May 12, 2019 5:16 pm

Totally understand the points made against discussing the rate of return. It's possible to calculate the rate of return on any stream of cash flow, but whether it makes sense or not depends on the context. I don't think many people would think it's worthwhile to look at the rate of return on a term life insurance policy- it's just not meant for that purpose. The Social Security program has many benefits- disability, survivor, and of course retirement income. The retirement benefit is a form of annuity, but I do think it makes sense to calculate the rate of return on the retirement benefit for these reasons:

* Some people do have control over how much social security tax they pay
* Even those who don't, they may have control over how much they work and earn. I might be more inclined to pick up some OT at work if I knew i were getting a government-guaranteed 15% return on my SS tax
* It helps people understand how the program works, and that the taxes they pay are related to the benefits they'll receive later in a direct way

That said, I'm not insistent that it should be included.

Good call about exemption from paying SS tax. I'll add a section.

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Re: Feedback requested on new article: Payroll tax

Post by LadyGeek » Sun May 12, 2019 9:16 pm

gclancer wrote:
Sat May 11, 2019 7:14 pm
I would expand the paragraph discussing HSA contributions, or (probably better) create an entire new section discussing Section 125 Cafeteria Plans. That section could include discussion of HSA contributions; health/dental/vision insurance premiums; health care FSA and LEXFSA contributions; and dependent care FSA contributions.

I’m not sure how worthwhile a discussion of social security as an investment is since the tax is compulsory for most, but you’ve devoted a good amount of effort to that section so certainly no harm in keeping it. The main people that would apply to would be S Corp owners who have some level of control over their payroll tax, and I don’t know a single S Corp owner that is analyzing the ROI on their social security contributions, they’re all just trying to minimize their payroll tax - probably since Medicare tax is such a big drag on Social Security ROI.
I also think that the section discussing Social Security as an investment should not be included.

Consider that a decision to take Social Security depends on many factors, many of which are not related to payroll taxes (the focus of this article).

Additionally, the section's conclusion is inconsistent with the introduction - The start of the section is "Social Security can be analyzed as an investment;", but the end of the section is " Social Security is arguably best viewed as more than an investment; "

As for other payroll deductions, the article is specific to FICA taxes.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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FiveK
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Re: Feedback requested on new article: Payroll tax

Post by FiveK » Sun May 12, 2019 10:21 pm

There is a wiki on Payroll deduction. Added a link to that for the purpose of explaining cafeteria plans.

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fyre4ce
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Re: Feedback requested on new article: Payroll tax

Post by fyre4ce » Sun May 12, 2019 11:00 pm

LadyGeek wrote:
Sun May 12, 2019 9:16 pm
gclancer wrote:
Sat May 11, 2019 7:14 pm
I would expand the paragraph discussing HSA contributions, or (probably better) create an entire new section discussing Section 125 Cafeteria Plans. That section could include discussion of HSA contributions; health/dental/vision insurance premiums; health care FSA and LEXFSA contributions; and dependent care FSA contributions.

I’m not sure how worthwhile a discussion of social security as an investment is since the tax is compulsory for most, but you’ve devoted a good amount of effort to that section so certainly no harm in keeping it. The main people that would apply to would be S Corp owners who have some level of control over their payroll tax, and I don’t know a single S Corp owner that is analyzing the ROI on their social security contributions, they’re all just trying to minimize their payroll tax - probably since Medicare tax is such a big drag on Social Security ROI.
I also think that the section discussing Social Security as an investment should not be included.

Consider that a decision to take Social Security depends on many factors, many of which are not related to payroll taxes (the focus of this article).

Additionally, the section's conclusion is inconsistent with the introduction - The start of the section is "Social Security can be analyzed as an investment;", but the end of the section is " Social Security is arguably best viewed as more than an investment; "

As for other payroll deductions, the article is specific to FICA taxes.
I agree the topic would be more appropriate for the Social Security article than payroll tax. I'll delete it from here.

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fyre4ce
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Re: Feedback requested on new article: Payroll tax

Post by fyre4ce » Tue May 14, 2019 10:36 pm

Thanks to all who have provided feedback and made edits. I just moved the article from my user page over to the main wiki, but I'm still happy to take comments and suggestions.

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Re: Feedback requested on new article: Payroll tax

Post by Thesaints » Tue May 14, 2019 11:48 pm

fyre4ce wrote:
Sun May 12, 2019 5:16 pm
Totally understand the points made against discussing the rate of return. It's possible to calculate the rate of return on any stream of cash flow, but whether it makes sense or not depends on the context. I don't think many people would think it's worthwhile to look at the rate of return on a term life insurance policy- it's just not meant for that purpose. The Social Security program has many benefits- disability, survivor, and of course retirement income. The retirement benefit is a form of annuity, but I do think it makes sense to calculate the rate of return on the retirement benefit for these reasons:

* Some people do have control over how much social security tax they pay
* Even those who don't, they may have control over how much they work and earn. I might be more inclined to pick up some OT at work if I knew i were getting a government-guaranteed 15% return on my SS tax
* It helps people understand how the program works, and that the taxes they pay are related to the benefits they'll receive later in a direct way

That said, I'm not insistent that it should be included.

Good call about exemption from paying SS tax. I'll add a section.
Let’s say that people are forced to contribute to social security, which consists of an annuity AND an insurance program.
It is not correct accounting to assume that all payments, forced or not, go towards the annuity.

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