What Is Social Security Tax? | Calculations, Reporting, & More

What Is Social Security Tax?

When you have employees, there are several taxes you must withhold from their wages or pay yourself. Social Security tax is one of these employment taxes.

What is Social Security tax?

Social Security is a payroll tax. Every employee and employer in the U.S. is required to pay Social Security tax. As an employer, you will withhold the tax from employee wages. You will also make a Social Security contribution based on the employee’s wages.

Social Security tax is one part of FICA tax. The other part of FICA tax is Medicare tax.

Self-employed individuals do not pay Social Security tax. Instead, they pay self-employment tax. Self-employment tax is similar to paying both the employee and employer portions of FICA tax.

What are Social Security taxes used for?

Social Security taxes are used by the federal government to pay Social Security benefits. Social Security is a system designed to help support retired individuals, widows and widowers, and people who are disabled.

Social Security is officially called Old-Age, Survivors, and Disability Insurance (OASDI).

How much is Social Security tax?

Social Security tax is a total flat rate of 12.4%. The employer and employee each pay half. You will withhold 6.2% from employee wages, and you will contribute 6.2% based on employee wages. This split ensures that employees don’t lose more than ten percent of their paycheck to one type of tax.

Only a certain amount of employee wages are subject to Social Security tax. The Social Security wage base is $142,800 for 2021. This means you will stop withholding and contributing Social Security tax for an employee once their wages reach the wage base in a calendar year. The wage base tends to increase every year to accommodate the rising cost of living.

graphic showing the FICA tax breakdown

FICA tax (Social Security and Medicare taxes combined) is 15.3%. The wage base only applies to Social Security tax. You must continue withholding Medicare tax once an employee’s wages hit the wage base.

Typically, Social Security tax is paid on an employee’s wages regardless of their age or if they are receiving Social Security benefits. However, some wages, such as employee expense reimbursements, are exempt from Social Security tax. You can learn more about exempt wages in Publication 15.

How to calculate Social Security tax

To calculate Social Security tax, you will multiply the employee’s wages by the Social Security tax rate. It doesn’t matter how frequently you pay the employee. You will always calculate the tax the same way.

Let’s say you pay an employee $1,000. You will multiply the $1,000 by 6.2% to determine how much to withhold from the employee’s wages.

$1,000 x 0.062 = $62

You will withhold $62 from the employee’s wages. You will also contribute $62 for the employer portion of the tax.

Once the employee earns $142,800 in 2021, stop withholding and contributing Social Security tax on their wages. If the employee’s wages never reach the annual threshold, you will not stop withholding and contributing the tax.

Remitting and reporting Social Security tax

Most employers must use Form 941 to report FICA taxes and federal income tax withholding. You must submit this form on a quarterly basis.

Some employers might be able to use Form 944 to report Social Security, Medicare, and federal income taxes. This is an annual form. The IRS will notify you if your business qualifies to use Form 944.

You will deposit Social Security taxes (along with Medicare and federal income taxes) on either a monthly or semiweekly basis. Your deposit schedule is based on a lookback period of the taxes you previously reported on Form 941 or Form 944. You can learn more about the lookback period and how to determine your deposit schedule in Publication 15. Your lookback period can change, so make sure you verify your lookback period before the beginning of every calendar year.

You must use EFTPS to deposit your payroll taxes. Late tax deposits may be subject to a fee.

By January 31 each year, you will give each of your employees a Form W-2. This form lists the amount of all the employment taxes you withheld from their wages during the previous year. You will also submit Form W-2 and Form W-3 (the summary transmittal form) to the Social Security Administration, which records the taxes withheld for the year. Forms W-2 and W-3 must be filed by January 31. You may also have to submit these forms to the state tax agency.

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This article is updated from its original publication date of 10/19/2015.

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