How to Calculate Social Security Tax

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Social Security, officially called the Old-Age, Survivors, and Disability Insurance program, is a federal program that primarily provides retirement benefits for American workers. The program is largely funded by a payroll tax, known as the Social Security tax. Unless your earnings are in the top tier, this tax is a fixed percentage of your income, which varies depending on whether you work for an employer, or are self-employed.

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  • Understand that your Social Security tax rate in 2014 is 12.4 percent of the first $117,000 of your annual pay. For most Americans, it works out to 12.4 percent of their total pay. The tax is evenly split between you and your employer; that is, a tax of 6.2 percent is imposed on your pay, withheld automatically every payday, and reported on your paystub and on your W-2 at year's end. If you're self-employed, you're required to pay both halves of the tax.

  • Determine your total taxable yearly income. Unless you make more than $117,000 each year, this number is simply your annual salary. If you make more than this cap, then your total income subject to Social Security tax is $117,000.

  • Multiply your total taxable yearly income by your Social Security tax rate. For example, if you're employed by someone else and earn $60,000 annually, your total Social Security tax for the year will be $3,720 (60,000 x .062). Your employer will also pay $3,720 on your behalf.

  • Calculate your earnings from self-employment. If they're $117,000 or less, the entire amount is subject to Social Security tax. Any portion of self-employment earnings above $117,000 are exempt from the tax. Multiply the taxable portion of self-employment earnings by 12.4 percent to determine your Social Security tax.

Tips & Warnings

  • Most employers combine Social Security withholding with Medicare withholding into a single item reported on your paystub and year-end W-2 form as FICA, for Federal Insurance Contributions Act. Medicare's tax is 1.45 percent of your pay, so the total FICA amount withheld is usually 7.65 percent, or 15.2 percent if you're self-employed. Note that there is no annual cap on earnings subject to Medicare tax. The legislation mandating that the self-employed pay both the employee's share and the employer's share of these taxes is called SECA, or the Self Employment Contributions Act.

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