What is Social Security Tax?
The Social Security Tax is a tax where employees must deduct under the (FICA) Federal Insurance Contributions Act. Self-employed tax is a Social Security Tax and Medicare Tax for self-employed individuals.
Social Security Tax is a percentage of gross income that employees, employers & self-employed individuals must pay to fund the funeral programs. Certain groups of taxpayers are immune from paying the social security tax.
Social Security benefits are hidden at a maximum monthly benefit price based on the earning history. To avoid the workers from paying more taxes which they can later receive in the form of benefits, there is a limit on the annual income earned.
How Social Security Tax is Calculated?
The Social Security Tax is calculated by grabbing a certain amount of your income from each paystub you receive. The law resolves Social Security Tax every year and applies to employers and employees.
Regarding employee compensation, the social security taxes are 6.2%, whereas the total is: 12.4%. The combined taxes deducted for social security and Medicare taxes are known as Federal Insurance Contributions Act (FICA).
The Social Security Tax for self-employed individuals is 12.4% fully. The maximum income for the Social Security Tax is $14,700, which is for the year 2022.
What is Social Security Tax Used For?
- Social Security Tax funds the retirement and disability benefits millions of Americans receive yearly from the Social Security Administration.
- In 2022, Social Security Tax was 12.4% evenly distributed between employers and employees on a maximum wage base of $147,000; in 2023, it’s $160,200.
- Self-employed individuals pay the employer and employee portions of Social Security Tax but on 92.35% of the business’s earnings.
Also, See: Social Security Administration (SSA)