How to Compute Social Security Tax

Include Social Security taxes paid when preparing your federal income tax return.

Social Security tax is also referred to as Old-Age, Survivors and Disability Insurance (OASDI). It is collected under the Federal Insurance Contributions Act (FICA) and used to provide benefits to qualified retirees, their beneficiaries and disabled individuals. The government sets the Social Security tax rate, and employers are required to withhold accordingly. The calculation for Social Security tax depends on a number of factors.

Things You'll Need

• Internal Revenue Service Circular E

Instructions

1. Calculate Social Security tax if you are an employee. The 2010 Social Security tax rate for employees is 6.2 percent of all gross wages, up to the yearly wage limit of $106,800. For instance, say you earn $670 biweekly. Calculation: $670 x 0.062 = $41.54, biweekly Social Security tax.

2. Compute Social Security tax if you are an employer. The employer must pay a matching Social Security tax amount. Therefore, the total between the employer and the employee is 12.4 percent. Using the example in Step 1, your Social Security tax each biweekly pay period would equal the employee amount. Once the employee has reached the maximum yearly limit, stop the withholding. Resume it when the next year begins.

3. Figure Social Security tax if you are self-employed. You are responsible for the entire 12.4 percent in this case. For instance, say you earn $35,000 for the year.
   Calculation: $35,000 x 0.124 = $4,340, yearly Social Security tax.
   The yearly wage limit is also $106,800 if you are self-employed.

Tips & Warnings

• Use IRS Circular E for the proper year to determine Social Security tax rates.

• Pay your Social Security tax along with your federal income tax and Medicare tax to the Internal Revenue Service.

References

• Internal Revenue Service: Circular E
• Social Security Administration: Social Security & Medicare Tax Rates