Social Security tax is a federal payroll tax that funds retirement, disability, and survivor benefits under the Social Security program. It is one half of FICA. Employees pay 6.2% of their wages up to a yearly limit called the wage base, and employers match that 6.2%, for a combined 12.4%.
Social Security tax supports the benefits that workers and their families can claim later, including retirement income and disability payments. It is withheld from each paycheck alongside Medicare tax, and the two together form FICA. What sets Social Security tax apart is its annual wage cap: once an employee’s earnings cross the wage base for the year, no more Social Security tax is withheld on the rest of that year’s wages.
Key features of the tax:
Because of the cap, Social Security tax is regressive at the top: very high earners pay a smaller share of their total income toward it than middle earners do.
Imagine the wage base for the year is $176,100. Tara earns $120,000, which is under the cap, so she pays 6.2% on all of it: $7,440. Her employer matches that. Now take Raj, who earns $200,000. He pays 6.2% only on the first $176,100, which comes to $10,918.20, and nothing more for Social Security on the remaining $23,900. He still owes Medicare tax and federal income tax on his full salary, since those are not subject to the same cap.
The Social Security tax rate is 6.2% for the employee and 6.2% for the employer, for a combined 12.4%. It applies only to wages up to the annual wage base limit.
It is the maximum amount of earnings subject to Social Security tax in a year. Wages above that cap are not taxed for Social Security, though Medicare tax still applies.
Yes. They pay both the employee and employer share, a combined 12.4%, through the self-employment tax.
