Social Security Taxes—Who Pays What and How Much?
Some of your earnings might be exempt from this tax
The Social Security tax, also known as Old Age, Survivors, and Disability Insurance (OASDI), applies to all income earned from labor. Paying it is pretty much unavoidable if you work. All employees and self-employed taxpayers pay the Social Security tax.
Social Security Tax Rates
Social Security functions much like a flat tax. Everyone pays the same rate regardless of how much they earn, at least up to a certain limit. As of 2019, a single rate of 12.4% is applied to all wages and self-employment income earned by a worker up to a maximum dollar limit.
Half this tax is paid by the employee through payroll withholding. The other half is paid by the employer. So employees pay 6.2% of their wage earnings up to the maximum wage base, and employers also pay 6.2% of their employee's wage earnings up to the maximum wage base, for a total of 12.4%.
This 12.4% figure does not include the Medicare tax, which is an additional 2.9% divided between employee and employer.
If You're Self-Employed
Self-employed persons must pay both halves of the Social Security tax because they're both employee and employer. They pay the combined rate of 12.4% of their net earnings up to the maximum wage base. This is calculated as the self-employment tax on Schedule SE. The self-employment tax includes both Social Security taxes and Medicare taxes.
But here's a bit of good news: You can claim an above-the-line deduction for one-half of your self-employment tax as an adjustment to income. You don't have to pay income tax on that portion of your earnings.
When you calculate your tax on Schedule SE, it will tell you the total amount of the above-the-line deduction you can claim.
The Social Security Tax Wage Base
All wages and self-employment income up to the Social Security wage base are subject to the 12.4% Social Security tax. The wage base is adjusted periodically to keep pace with inflation. It was increased from $128,400 to $132,900 in 2019. Here's how it broke down year by year from 2012 to 2018:
|Social Security Wage Base by Year|
How the Math Works
The math works like this:
- If your wages are less than $132,900 in 2019, multiply your earnings by 6.2% to arrive at the amount you and your employer must each pay for a total of 12.4%. If you're self-employed, multiply your earnings up to this limit by 12.4% to calculate the Social Security portion of your self-employment tax.
- If your wages are more than $132,900 in 2019, multiply $132,900 by 6.2% to arrive at the amount you and your employer must each pay. Anything you earn over this threshold is exempt from Social Security tax. You would do the same but multiply by 12.4% if you're self-employed.
If You Work More Than One Job
Keep the wage base in mind if you work for more than one employer. If you've earned $66,000 from one job and $66,901 from the other, you've crossed over the wage base threshold. Neither employer should withhold any further Social Security tax from your pay—or pay half the 12.4% on your behalf—until year's end.
It doesn't matter that individually, neither job has reached the wage base threshold. The wage base threshold applies to all your earned income. But separate employers might not be aware that you've collectively reached this limit, so you'll have to notify both employers that they should stop withholding for the time being.
These are annual figures, so the Social Security tax starts right back up again on Jan. 1 until you hit the next year's Social Security wage base.
What Is the Social Security Tax For?
Income taxes you pay are deposited into the general fund of the United States. They can be used for any purpose, but Social Security taxes are different.
These taxes are paid into special trust funds that can only be used to pay current and future Social Security retirement benefits, as well as disability benefits and benefits for widows and widowers. Today's workers contribute their percentage, which in turn is paid to today's beneficiaries—those workers who have retired and who are now collecting Social Security benefits. When today's workers retire, they'll tap into the benefits being paid by tomorrow's workers.
There Was a Special Rate Reduction in 2011 and 2012
The Social Security tax rate paid by employees was only 4.2% in 2011 and 2012. Employers still paid the full 6.2% rate, but employees caught a temporary break. The combined Social Security tax rate for employers and employees was only 10.4% during these years. Self-employed persons paid this 10.4% combined rate on their earnings.
This special payroll tax holiday was enacted as part of the Tax Relief Act of 2010, then it was extended through February 2012 by HR 3765. It was then extended again through the end of 2012 by HR 3630. But the reduced Social Security tax rate was not renewed in 2013 as part of the American Taxpayer Relief Act, so it reverted back to the current rate of 6.2% for employees, 6.2% for employers, and 12.4% for self-employed persons.
To prevent Social Security from losing tax revenue, Congress mandated that revenues be transferred from the general fund of the U.S. to the Social Security trust funds to make up for this two-year tax rate reduction.