Social Security Tax
What Is Social Security Tax?
Social Security tax is a federal payroll tax used to fund the Social Security program, which provides retirement, disability, and survivor benefits to eligible individuals.
The tax is collected under the Federal Insurance Contributions Act (FICA).
Why It Matters
Social Security taxes help finance a major source of income for retirees and individuals with disabilities. The program provides financial security for millions of Americans.
Workers contribute to the system throughout their careers.
How Social Security Tax Works
Employers withhold Social Security taxes from employee wages.
Both employees and employers contribute a percentage of wages to the program.
Self-employed individuals pay Social Security tax as part of self-employment taxes.
However, Social Security tax only applies to income up to an annual wage limit set by the government.
Example
A worker earning wages from employment contributes to Social Security through payroll deductions taken from each paycheck.
Social Security Tax vs Medicare Tax
- Social Security tax funds retirement and disability benefits.
- Medicare tax funds healthcare coverage for older adults.
FAQs About Social Security Tax
Who must pay Social Security tax?
Most workers and employers contribute to the program.
Is there a wage limit for Social Security tax?
Yes. Only earnings up to a certain limit are taxed.
Do self-employed individuals pay Social Security tax?
Yes. They pay both the employee and employer portions.
Related Terms
