Social Security tax is a payroll tax that funds retirement, disability, and survivor benefits

Social Security tax is money taken from your paycheck to fund the Social Security program. The program pays benefits to people who are retired, disabled, or whose family members have died. If you work as an employee, your employer takes this tax directly from your wages. If you are self-employed, you pay it yourself when you file your taxes.

The tax rate is 6.2 percent of your wages, up to a certain income limit that changes each year. Your employer pays an equal 6.2 percent on your behalf. Self-employed people pay both portions — 12.4 percent total — though they can deduct half of it when calculating their income tax.

Social Security tax is separate from income tax and Medicare tax, though all three often appear on the same paycheck stub. The money you pay in does not go into a personal account with your name on it. Instead, it goes into a general fund that pays current beneficiaries, and your future benefits are based on your earnings record and age when you start collecting.

Key Takeaways

  • Social Security tax is 6.2 percent of wages for employees and 12.4 percent for self-employed workers, taken from paychecks or paid when filing taxes.
  • The tax only applies to earnings up to a certain limit, which is adjusted each year — earnings above that limit are not taxed for Social Security.
  • Your employer matches your contribution dollar-for-dollar, but self-employed workers pay the full amount themselves.
  • The money funds retirement benefits, disability benefits, and survivor benefits for the families of workers who have died.
  • Your Social Security benefits are based on your lifetime earnings record, not on how much tax you personally paid in.

How the tax rate and income limit work

The Social Security tax rate has been 6.2 percent since 1990 and does not change. What does change is the wage base limit — the maximum amount of your income that is subject to the tax. In 2024, that limit is $168,600. Any wages you earn above that amount are not taxed for Social Security, though they are still taxed for Medicare and income tax.

The wage base limit increases most years to account for inflation and wage growth. This means a worker earning $200,000 in 2024 would pay Social Security tax only on the first $168,600 of that income. A worker earning $150,000 would pay on all $150,000. The limit is different each year, so check the current year's limit when calculating what you owe.

If you work for multiple employers in the same year, each one withholds Social Security tax on your full wages up to the limit. This can mean you pay more than you owe if your combined earnings exceed the limit. You can recover the overpayment by claiming it on your tax return.

Who pays Social Security tax and who does not

Most workers in the United States pay Social Security tax. This includes employees, self-employed people, and household workers like nannies and housekeepers if they earn more than a certain amount per year. Railroad workers pay into a separate but similar system.

Some government employees do not pay Social Security tax. This includes federal employees hired before 1984, some state and local government workers, and certain workers in other countries. These workers often pay into a different retirement system instead. If you work for a government agency, check with your payroll office to find out which system you are in.

Nonresident aliens working temporarily in the United States may be exempt from Social Security tax depending on their visa status. Students working on campus at their school may also be exempt. If you are unsure whether you should be paying, ask your employer or contact the Social Security Administration.

What Social Security tax pays for

Social Security tax funds three main types of benefits. Retirement benefits go to workers age 62 or older who have worked long enough to earn them. Disability benefits go to workers under full retirement age who cannot work due to a medical condition expected to last at least 12 months. Survivor benefits go to the spouse, children, and parents of a worker who has died.

The program also pays a small lump-sum death benefit to the family of a deceased worker. All of these benefits come from the same pool of tax revenue. When more people are collecting benefits than working and paying in, the program draws on reserves. When more people are working and paying in than collecting, the reserves build up.

Social Security is designed as a pay-as-you-go system, meaning current workers' taxes pay current beneficiaries. Your future benefits will be paid by future workers' taxes. This is different from a savings account where your own money is set aside for you.

How your earnings record affects your benefits

The Social Security Administration keeps a record of your earnings throughout your working life. This record determines how much you can receive in benefits when you retire, become disabled, or when your family becomes may have access to to survivor benefits. The more you earn over your lifetime, the higher your potential benefit.

Social Security looks at your highest 35 years of earnings to calculate your benefit amount. If you worked fewer than 35 years, zeros are included in the calculation, which lowers your average. You need at least 10 years of work (40 quarters of coverage) to be may have access to to retirement benefits on your own record.

You can view your earnings record by creating an account on ssa.gov. The Social Security Administration sends a statement each year showing your estimated retirement, disability, and survivor benefits based on your current earnings record. Check this statement for errors, as mistakes can affect your benefits.

Self-employed workers and Social Security tax

If you are self-employed, you pay Social Security tax through self-employment tax when you file your annual income tax return. Self-employment tax is 15.3 percent total — 12.4 percent for Social Security and 2.9 percent for Medicare. This covers both the employee and employer portions because you are both.

You calculate self-employment tax on your net business income, which is your business income minus business expenses. You only pay self-employment tax on net income above $400. If your net income is $400 or less, you do not owe self-employment tax, though you may still want to file to establish your earnings record.

Self-employed workers can deduct half of their self-employment tax when calculating their adjusted gross income for income tax purposes. This deduction reduces your taxable income but does not reduce the amount of Social Security tax you pay. Keep records of your business income and expenses to calculate self-employment tax correctly.

The difference between Social Security tax and other payroll taxes

Your paycheck typically shows three separate payroll taxes: Social Security, Medicare, and federal income tax. Social Security tax is 6.2 percent and funds retirement, disability, and survivor benefits. Medicare tax is 2.9 percent (or 3.8 percent for high earners) and funds health insurance for people 65 and older. Federal income tax is withheld at a rate that depends on your income, filing status, and the form you filled out with your employer.

Social Security tax has a wage base limit — you stop paying it once you reach the limit for the year. Medicare tax has no limit, so you pay it on all your wages no matter how much you earn. Federal income tax also has no limit. This is why high earners pay a smaller percentage of their total income in Social Security tax than lower earners do.

State and local income taxes are separate from federal taxes and vary by location. Some states have no income tax, while others tax wages at rates ranging from less than 1 percent to over 10 percent. These are not part of Social Security tax.

Frequently Asked Questions

What happens to the Social Security tax I pay?

Your Social Security tax goes into a general fund that pays current beneficiaries — retirees, disabled workers, and survivors of deceased workers. You do not have a personal account holding your money. Your future benefits are based on your lifetime earnings record and the age you start collecting, not on how much tax you personally paid in.

Can I opt out of paying Social Security tax?

No, Social Security tax is mandatory for most workers in the United States. The only exceptions are certain government employees, some nonresident aliens, and students working on campus at their school. If you believe you should be exempt, contact your employer or the Social Security Administration to verify your status.

What if I paid too much Social Security tax in one year?

If you worked for multiple employers and your combined wages exceeded the wage base limit, you may have overpaid. You can claim the overpayment on your federal income tax return, and the IRS will refund it or explore it to other taxes you owe. Self-employed workers should calculate their self-employment tax carefully to avoid overpaying.

Does Social Security tax explore to all types of income?

Social Security tax applies to wages and self-employment income. It does not explore to investment income, interest, dividends, capital gains, or rental income. If you have both wages and self-employment income, you pay Social Security tax on both, but the combined amount cannot exceed the wage base limit for the year.

How do I check my Social Security earnings record?

Create an account on ssa.gov to view your earnings record and estimated benefits. The Social Security Administration also mails a statement each year showing your record. Review it for errors, especially if you recently changed jobs or had a name change. Report any mistakes to Social Security right away so they can be corrected.