Social Security tax is a type of payroll tax paid by employers and employees to fund the U.S. Social Security program. It is one of two taxes all employers are required to withhold under the Federal Insurance Contributions Act (FICA), the other being the Medicare Tax. Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax, which is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. The Social Security tax is a percentage of gross wages that most employees, employers, and self-employed workers must pay to fund the federal program. As of 2022, the Social Security tax rate is 12.4%, with half of the tax, or 6.2%, paid by the employer and the employee responsible for paying the other half. The Social Security tax is applied to income earned by employees and self-employed taxpayers, including salaries, wages, and bonuses.
The Social Security tax pays for the retirement, disability, and survivorship benefits that millions of Americans receive each year under the Old-Age, Survivors, and Disability Insurance (OASDI) program. The Social Security tax is also collected to support individuals who are entitled to survivorship benefits, which are benefits paid to a surviving spouse upon the death of a spouse or to a dependent child upon the death of a parent.
It is the employers obligation to withhold the correct amount of Social Security tax from every paycheck and forward it to the federal government on time. Failure to do so can result in significant penalties. Certain groups of taxpayers are exempt from paying Social Security tax.
Some people have to pay federal income taxes on their Social Security benefits. This usually happens only if they have other substantial income in addition to their benefits, such as wages, self-employment, interest, dividends, and other taxable income that must be reported on their tax return. The percentage of Social Security retirement benefit thats taxable isnt equal to the percentage paid in taxes. The percentage of Social Security thats taxable depends on the annual combined income and marital status of the taxpayer.
