Social Security Tax: What Employers Need to Know

  • Accracy
  • 26th Nov, 2023

Social Security tax is a federal tax that pays for things like the Social Security benefits you get from the federal government when you retire, survivor benefits for your family if you die, disability benefits, etc.

Social Security Tax: What Employers Need to Know
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If you, your children or your widow(er) ever receive any kind of Social Security income, these taxes are probably what paid for it.

Both employees and employers have to pay into Social Security tax. Payroll taxes like Medicare and Social Security are usually grouped together as FICA ("Federal Insurance Contributions Act"). It's also referred to as "old age, survivors, and disability insurance tax" (OASDI), Social Security taxes pay into the United States Social Security Administration's (SSA) Social Security programs—retirement benefits, disability benefits, dependent and survivor benefits, etc.

If you're self-employed, you'll hear tax professionals refer to your Social Security and Medicare tax as "self-employment tax."

How much is it?

Social Security tax is shared evenly by the employer and employee. You're each responsible for 6.2% of the employee's taxable income, up to a maximum wage per employee per year. The Internal Revenue Service refers to this income limit as the wage base and it's set at $160,200 for 2023.

How to calculate it

To calculate how much Social Security tax you need to withhold from an individual employees' paycheck, multiply your employee's gross income for the current pay period by 6.2%, which is the current Social Security tax rate.

For example, let's say an employee's gross pay for the current month is $2,000. To calculate Social Security tax withholding for that month, you'd make the following calculation:

$2,000 x 0.062 = $124

In this case, you would withhold $124 from the employee's paycheck, and contribute another $124 to their Social Security yourself.

Now let's say your employee makes more than the $160,200 wage base for the year. They make $180,000 a year. How much Social Security tax will you need to withhold from their paycheck each month?

You're only required to withhold 6.2% of their pay on the first $160,200 they make, or the first $13,350 they make every month. Don't withhold for any salary above that maximum amount.

That means their monthly Social Security withholding would be:

$13,350 x 0.062 = $827.70

Which tax forms do I need to file?

Employers must submit IRS Form 941, the Employer's Quarterly Federal Tax Return, to report both the employee and employers' portion of Social Security and Medicare. You should submit Form 941 quarterly to report these taxes.

You'll also have to fill out a W-2, which is a combined wage and tax statement that you have to provide to each of your employees once a year to show how much FICA taxes were withheld that year.

How do I actually pay these taxes?

Although Form 941 is a quarterly tax form, you'll actually make FICA tax payments monthly or every two weeks, depending on how much FICA tax you paid during the current "lookback period."

The current lookback period for the 2023 tax year is July 1, 2021 to June 30, 2022. If you reported more than $50,000 in taxes on Form 941 during that time, you have to deposit your Social Security tax semi-weekly. If your tax liability was less than $50,000, you have to deposit monthly.

The IRS requires all employers to make payroll tax deposits using the EFTPS online system.

What if I don't have any employees?

You'll still have to remit Medicare and Social Security taxes—for yourself. This is called self-employment tax, and it's effectively Medicare plus Social Security for yourself (which amounts to 15.3% of your total income).

If you had self-employment income earnings of $400 or more during the year, you are required to pay self-employment taxes and file Schedule SE with your federal income tax return (Form 1040), which is generally due by April 15.

Use our free estimated tax calculator to figure out how much estimated tax you'll owe.

How do Social Security tax credits work?

"Credits" here doesn't mean "tax credits," but "points" you earn towards qualifying for the SSA's social programs.

This system is complicated—you can read more about it in the SSA's guide to credits here. But the general idea is that you get one "credit" for every $1,410 in net earnings, for a maximum of four credits per year.

To qualify for certain Social Security programs, you'll have to earn a certain number of credits. For example, if you're disabled at age 31, you'll need to have earned 20 credits in the last 10 years to be eligible for Social Security.

Learn more: How You Earn Credits in 2020

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