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Introduction to What Is Social Security Tax?

Dec 02, 2023 By Triston Martin


Social security tax is a payroll tax that employers are obligated to withhold from their employees' wages, and they must also pay an equal amount of the tax. This contribution is sent to the Internal Revenue Service (IRS), which funds programs such as Social Security and Medicare. With social security tax, individuals can rest assured that their retirement years will be comfortable and secure. By understanding how social security taxes work and what contributions are required, taxpayers can ensure that they remain compliant with the law.

What Is Social Security Tax?

The social security tax is a federal payroll tax imposed on employers and employees in the United States. The proceeds from this tax fund two government-sponsored insurance programs: Social Security and Medicare. It was first enacted in 1935 as part of President Franklin D. Roosevelt's New Deal and has been a part of the federal income tax system ever since.

Social Security Tax Rates and Limits

The current social security tax rate is 6.2 percent for employees and employers each, with an additional 1.45 percent going toward Medicare taxes (a combined 7.65 percent). The maximum amount of wages subject to Social Security taxation is $132,900 for 2019; any wages earned beyond that are not subject to the Social Security tax.

Taxable vs. Non-Taxable Wages

In addition to the wage limit, certain types of income are excluded from Social Security taxes altogether. These include tips, self-employment income, sick pay, and certain disability payments from employer-sponsored plans. In addition, some wages are only partially taxable; for example, employees may be able to exclude a portion of their income from self-employment taxes.

How Social Security Tax Is Withheld and Paid

Employers are responsible for periodically withholding the appropriate social security tax from each employee's wages. The employer then matches this amount and sends the combined total to the IRS (along with any other taxes due). Employees can view their net pay after these withholdings by accessing their W-2 forms or pay stubs. They can also verify that the correct amount of taxes were withheld by visiting their online account at the IRS website.

Self-Employment and Social Security Taxes

Self-employed individuals are responsible for paying the entire amount of Social Security taxes themselves. This includes the employee and employer portions of the tax, which must be reported on an IRS Form 1040 yearly. Self-employed individuals can deduct half of their self-employment taxes when filing their annual tax return since they are effectively "paying themselves" as both an employer and an employee.

Retirement Security with Social Security

Tax Social security tax is the foundation of retirement planning for millions of Americans. It provides a guaranteed income during retirement and helps protect individuals from outliving their savings. The Social Security Administration (SSA) administers the program, which is funded by payments from employers and employees through payroll taxes. This system was established to provide a secure financial future for workers after they retire or become disabled.

Benefits of Social Security Tax

The primary benefit of social security tax is that it provides an income source during retirement that is not affected by market fluctuations. Workers who have paid into the system are eligible to receive monthly benefits when they reach a certain age based on the number of contributions they have made. The system also provides survivor benefits for families in the event of a death.

Social Security Tax and Employers

Employers are responsible for collecting social security taxes from employees' wages and submitting them to the SSA on behalf of their workers. They must pay 6.2% of each employee's wages, up to a maximum amount set by law, and an additional 1.45% for Medicare expenses. The employer is also responsible for keeping accurate records of payroll taxes paid so that they can be reported correctly on tax returns.

Key Takeaways

• Social Security Tax provides a guaranteed income during retirement and helps protect individuals from outliving their savings.

• Employers must pay 6.2% of each employee's wages and an additional 1.45% for Medicare expenses to the Social Security Administration (SSA).

• Social security tax is an essential part of retirement planning, helping to ensure a secure financial future after retirement or disability.


Social security tax is an important part of the federal income tax system in the United States. It helps fund programs such as Social Security and Medicare and provides benefits to retirees, disabled persons, and survivors of deceased workers. Employers must withhold this tax from their employee's wages, while self-employed individuals must pay it directly to the IRS. By understanding what social security taxes are and how they're calculated, taxpayers can ensure that they remain compliant with the law.

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