QUESTION: How much money will be taken out of my paycheck in 1988 for Social Security? Is there a way I can check on how much money I have paid in Social Security taxes over the years?
ANSWER: American workers who are not self-employed currently pay Social Security taxes of 7.51% of their income, up to a maximum of $45,000. This amounts to a total possible annual tax of $3,379.50. Self-employed individuals are liable to pay twice that amount because they are responsible for both the employer's and employee's share of the tax.
For more information on Social Security taxes and benefits, read "Social Security, How It Works for You." This pamphlet, which is aimed at an audience of workers, not retirees, is available by calling (800) 937-200 or by writing to the Social Security Administration, P.O. Box 17724, Baltimore, Md. 21203.
There's an easy way to find out how much you have contributed to Social Security and what you can expect to receive upon retirement. Simply call (800) 988-1841 or write to your local Social Security Administration office and ask for Form SSA-7004, "Request for Statement of Earnings." The Los Angeles office is located at 841 S. Figueroa St., Los Angeles, Calif. 90017. When you get the form, which asks your birth date, Social Security number and a few other questions, complete it and mail it back to the enclosed address. The Social Security Administration will then send you back a listing of your employment earnings and expected retirement benefits.
Social Security officials suggest that you wait until July to request Form 7004 since the agency is revising response materials. The new response forms will include far more data about your earnings and expected benefits. However, if you must have an answer immediately, the agency will still be able to provide you with some information. Agency officials also recommend that you request and complete the form every three years to verify that the administration has your correct employment data.
If you think there is an error in the information, you should contact your local Social Security office. Be prepared to show agency officials appropriate tax returns or earnings statements to support your position. Agency officials say they cannot guarantee that they will be able to correct mistakes more made more than three years earlier, and that's why they recommend filing the form every three years.
Q: I just read that if you are single, with an income of less than $25,000, you can get a full deduction for setting up an individual retirement account even if you are covered by a company retirement plan. I fall into the above category and am interested in opening an IRA for 1988 if this information is correct. Can you find out?--R. R.
A: Yes, the information you read is correct. Basically, the law allows single workers whose annual earnings are below $25,000 to contribute as much as $2,000 to an IRA and receive a 100% tax deduction for the contribution. Single workers earning between $25,000 and $35,000 may still establish an IRA and receive a partial deduction for the account. For example, a single worker earning $30,000 would be allowed to deduct up to $1,000 of the amount contributed to an IRA. The deduction is phased out completely once workers earn $35,000 per year.
Married workers with a combined annual income of below $40,000 are permitted a full tax deduction for their contributions to an IRA. If both spouses work, the total deductable contribution would be $4,000. If only one spouse works, the deduction would be $2,250. The allowed deduction is reduced as family income rises and is phased out entirely at $50,000.
When Congress imposed income limits on the deductibility of IRA contributions in 1987, critics complained that the changes made IRAs most attractive to the people who could least afford to contribute to them: lower-earning worker who needs as much money as possible to meet monthly expenses. However, IRA experts advise workers that they should still open an IRA even if they can't afford to make the full tax-deductible IRA contribution allowed. "You don't have to make a full deduction," says one lawyer. "Just do whatever you can."
Q: I receive a pension from a California county. I was told by the Franchise Tax Board that if I established my residence in another state I would still be required to pay income tax to California on my county pension. They say any pension based on services performed in California is subject to taxation by California. Is this correct? Also, if this is true, is it not a form of tax discrimination, since only service work and not other types of work are singled out for taxation?--G. B.
A: Calm down. California doesn't discriminate in the type of pensions it taxes. It taxes all of them. Like 38 other states in the U.S., California levies an income tax on all pensions that are based on work performed in California, whether your job was in the service sector, manufacturing, farming or whatever. And that tax is levied regardless of where you are living when you collect your pension.
However, before you cry double taxation, there's more you should know. California, 37 other states and the territories of American Samoa, Puerto Rico and the Virgin Islands allow you to deduct the income taxes that you pay on your pension in one state from those due in the state of your retirement residence. The only states not allowing this deduction from their own state income taxes are Alaska, Arizona, Connecticut, West Virginia, Wyoming and South Dakota. Also, Florida, Nevada, Washington, Texas and Tennessee do not permit the deduction because none of them now levy state income taxes of their own.
It would seem that if you are seriously concerned about double taxation of your pension that you should carefully consider the state to which you move after retiring.
Last week's column contained incorrect information on the new regulations for deducting interest payments generated by the refinancing of a personal residence. According to Robert Sullivan, a partner with the Los Angeles accounting firm of Stonefield Josephson, whose comments were incorrectly reported, a homeowner may deduct refinance interest payments for a new loan of up to $100,000 above any existing indebtedness on the home at the time of the refinancing. In last week's column, Sullivan was incorrectly quoted as saying that the law limited deductable refinance interest payments to loans that did not exceed the home's original purchase price. Under the new law, the original purchase price is no longer relevant.
Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.