What Is the Social Security Tax Rate?
Social Security tax is used to provide retirement and disability benefits to qualified retirees and their spouses and children. The government collects Social Security tax under the Federal Insurance Contributions Act (FICA). Additionally, the government administers the Social Security tax rate.
Other People Are Reading
-
History
-
President Franklin D. Roosevelt signed the Social Security Act on Aug. 14, 1935, according to the Social Security Administration. Initially the act was referred to as the Economic Security Act but was later changed to the Social Security Act, after Congress reevaluated the bill. The first Social Security taxes were collected in January 1937. Starting in January 1984, and following the 1983 amendment to the Social Security Act, all income earners, including the President, Vice President, members of Congress, the majority of political appointees, and federal judges were required to pay Social Security tax. However, some federal employees hired prior to January 1984 were not required to pay Social Security tax.
Employee Rate
-
Employers are required by law to withhold Social Security tax from employees' paychecks. For years 1990 and later, the Social Security tax rate for employees is 6.2 percent of all gross income, up to the yearly maximum of $106,800. For instance, say the employee earns $600 weekly.
Calculation: $600 x .062 = $37.20, weekly Social Security tax withholding.
Once the employee reaches the yearly maximum of $106,800, the employer stops the withholding and resumes it at the start of the following year
-
Employer Rate
-
The employer pays a matching amount in Social Security tax. This equals the employee's amount of 6.2 percent of all gross income up to the yearly maximum wage limit of $106,800.
Self-Employment Rate
-
Self-employed individuals include independent contractors, sole proprietors, part-time business owners, and those involved in a trade or business in which the objective is to make a profit. Self-employed individuals do not have an employer to pick up the matching Social Security tax amount. Therefore, they pay the entire 12.4 percent. For instance, say he earns $50,000 for the year.
Calculation: $50,000 x .124 = $6,200, annual Social Security tax.
Payment/Reporting
-
Employers pay their portion and employees' Social Security tax (plus Medicare and federal income tax) to the Internal Revenue Service (IRS). The IRS determines the employer's tax deposit schedule, which may be semi-weekly or monthly. Furthermore, the employer is required to include employees' Social Security tax withheld on the latter's W-2 form. Self-employed individuals report (and pay) Social Security tax annually to the IRS using Schedule SE, Form 1040.
-
References
- Photo Credit law courts image by Peter Helin from Fotolia.com
