📖 Tax Glossary
Social Security Tax
Social Security tax is a payroll tax that funds retirement, disability, and survivor benefits under the federal Social Security program. Nearly all employees and employers pay this tax through paycheck withholding, and self-employed workers pay it as part of self-employment tax.
Simple definition
Social Security tax is a tax taken from your paycheck to fund Social Security benefits. Employees pay a percentage of their wages, and employers match that amount.
📊 Social Security tax rate
For employees:
💡 Self-employed workers pay the full 12.4% themselves as part of self-employment tax.
⚠️ Wage base limit (important!)
Social Security tax does NOT apply to all income — only up to a certain amount each year, called the wage base limit.
Example: 2024 Wage Base Limit
What this means: Earnings above that limit are not subject to Social Security tax.
💡 The wage base limit increases most years to keep up with wage growth. Always check the current year's limit.
💰 What Social Security tax funds
This tax pays for:
Retirement benefits
Monthly payments to retirees
Disability benefits
SSDI for disabled workers
Survivor benefits
Support for families of deceased workers
Dependent benefits
In qualifying cases
💡 Social Security is one of the largest federal programs in the U.S.
👨💼 For self-employed workers
Self-employed individuals pay the entire 12.4% as part of self-employment tax.
The good news: You can deduct half of your self-employment tax (the "employer portion") when calculating your AGI.
💡 This deduction helps offset the burden of paying both the employee and employer portions.
📊 Visual example
Employee Social Security tax calculation
Calculation:
$70,000 × 0.062 = $4,340
💡 Your employer also pays $4,340 on your behalf. Together, that's $8,680 going toward your future Social Security benefits.
⚖️ Employee vs. Self-Employed
| Feature | Employee | Self-Employed |
|---|---|---|
| Tax rate you pay | 6.2% | 12.4% |
| Employer pays | ✅ 6.2% | ❌ None (you pay both) |
| Deduction available? | ❌ No | ✅ Deduct half (6.2%) |
| Subject to wage base limit? | ✅ Yes | ✅ Yes |
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