Social Security Taxes

Employers must withhold Social Security and Medicare taxes--these are known as FICA (Federal Insurance Contributions Act) taxes. The FICA tax actually consists of two taxes: a 6.2 percent Social Security tax and a 1.45 percent Medicare tax.

Social Security Taxes

The Social Security Act was signed into law by President Roosevelt on August 14, 1935. In addition to several provisions for general welfare, the new Act created a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement.

How much is withheld for Social Security taxes? 

The Social Security tax rate is 6.2% for individuals with Social Security taxable wages up to the current year limit.  Employees and employers each pay 6.2%, for a total of 12.4%. 

What is excluded from the calculation for Social Security Taxable Wages?

Pre-Tax Cafeteria Benefit deductions area are excluded from your wages before the Social Security taxes are calculated.  Pre-tax Cafeteria plans such as e, this could his could be f you participate in your employer’s group health insurance program, you may choose to have your premiums deducted prior to the calculation. Your contributions to a dependent care assistance program typically are not considered taxable wages for Social Security, either.

Earnings Limit

Wages beyond a certain amount each calendar year are excluded from Social Security tax. The cap changes from year to year.  For 2022, the cap is $147,000 and in 2023 it will be $161,000. Thus, the first $161,000 you earn during 2023 is considered taxable wages for Social Security.  Once you reach that limit, your earnings are no longer subject to Social Security withholding.

Do you still have to pay Medicare tax after age 65?

Yes. There is no exemption for paying the Federal Insurance Contribution Act (FICA) payroll taxes that fund the Social Security and Medicare systems. As long as you work in a job that is covered by Social Security, FICA taxes will be withheld from your paycheck. The same goes if you remain actively self-employed.

Where do my Social Security Tax Dollars Go?

Generally, out of every dollar you pay in Social Security taxes:

• 85 cents goes to a trust fund that pays monthly benefits to retirees and their families. That works out to an average monthly benefit of $1,430.73 or $17,168.76 a year.
• 15 cents goes to disabled benefits. On average, Social Security Disability Insurance payments range between $800 and $1,800 per month in 2021. However, the maximum benefit you could receive was $3,000 a month. The SSA will determine your monthly payment based on your lifetime average earnings before you became disabled. If you receive other government benefits (worker’s compensation, public disability benefits, etc.), your monthly SSDI could be reduced.
• Less than 1 cent goes to pay for administrative costs, making the Social Security Administration one of the most efficiently run arms of the Federal Government

Your Social Security taxes also pay for administering Social Security. The administrative costs are paid from the trust funds described above and are less than one cent of every Social Security tax dollar collected. Money not used to pay benefits and administrative expenses is invested.