What Is the Social Security Tax Rate?
Nearly everyone who earns an income is subject to taxes based on the current Social Security tax rate. The Social Security tax rates are set by law, and the proceeds are used to pay for important social services, including Social Security's Old-Age, Survivors, and Disability Insurance.
In 2015, the tax rate for Social Security was 6.2% of an employee's income for the employee and employer, each, or 12.4% for self-employed workers. These rates have been largely unchanged since 1990, with lower rates for employees in 2011 and 2012. Current Social Security tax rates can be found on the Social Security Administration's website.
Social Security Tax Rates for Employees, Employers, and the Self-Employed
The Social Security tax rate differs depending on the nature of one's earnings. The Social Security tax burden is split between employers and employees each for traditional workers, while self-employed workers must pay the full tax burden themselves. This is the result of both the Federal Insurance Contributions Act (FICA) and Self-Employment Contributions Act (SECA).
For most workers, Social Security taxes are traditional payroll taxes. FICA splits the burden of Social Security taxes between the employee and the employer. The employee and employer each pays the same Social Security tax rate on the employee's income. However, a self-employed worker, such as a small business owner or freelance contractor, would be responsible for SECA taxes covering the full tax burden.
Take, for example, an employee making $50,000 in 2014. This worker would pay a FICA tax of 6.2%, or $3,100. His or her employer would also pay a Social Security tax of 6.2% on that employee's earnings, or another $3,100. Should the worker be self-employed and making $50,000 in 2014, his or her Social Security tax rate would be 12.4%, a total of $6,200.
Typically, FICA taxes are deducted directly from an employee's paycheck by the employer. Self-employed earners are responsible for paying all of their Social Security taxes on their own and should consider paying in quarterly installments to avoid penalties.
Maximum Taxable Amounts
Social Security taxes apply only to earnings under the maximum taxable amount. This amount changes almost every year and is calculated based in part on the National Average Wage Index. The yearly maximum taxable income can be found on Social Security Administration's website. All income below this level is subject to the current Social Security tax rate, while no income over the maximum amount is subject to FICA or SECA taxes. In 2015, the maximum taxable income was $118,500. Thus, for an employee making $180,000 in 2015, only $118,500 of that would be subject to the employee's 6.2% FICA tax rate. The remaining $61,500 would not be taxed for Social Security.
Since the Social Security tax rate applies only to earnings below a certain level, it's possible to overpay your Social Security taxes. Employees who work for several different companies during the tax year may have their deductions exceed the maximum. This is because each employer may not know that the employer has a total income over the maximum taxable amount. Excess deductions are reported with your annual tax return filings and any overpayment is refunded.
What Earnings Are Taxed?
Some income may not be subject to Social Security taxes. All income over the maximum taxable amount is exempt, as is self-employment income of less than $400 a year. Several common pre-FICA deductions can be taken off an employee's income before taxes, so that Social Security taxes won't apply to them. These include "cafeteria" medical insurance premiums, long-term disability insurance, life insurance, and contributions to certain retirement plans. In addition, full-time students who work part-time for their university, as in a work-study program, may not need to pay FICA taxes on their income. A full list of exemptions can be found in IRS Publication 15.
If you have questions about the Social Security tax rate, maximum taxable amounts, deductions or other tax questions, consider contacting an experienced tax lawyer who can answer your questions and discuss your options.