The Definition of Social Security Tax
The Social Security tax is part of the federal payroll taxes that are paid on earned income in the United States.
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History
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The Social Security tax was first imposed in 1937 at a rate of just 1 percent.
Function
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As of 2009, the Social Security tax is 12.4 percent of earned income. When combined with the 2.9 percent Medicare tax, the total payroll tax is 15.3 percent.
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Effects
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Employees share the Social Security tax with their employers, with each contributing 6.2 percent of the employee's wages. Self-employed individuals must pay the 12.4 percent themselves.
Limits
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Social Security taxes are only taken from the first $106,800 of your earned income in 2009 and 2010. Any additional income is Social Security tax-free.
Purpose
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Social Security taxes are collected to pay for the benefits paid out to retired individuals who have paid into the system during their working lives.
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