What Social Security tax is and who pays it

Social Security tax is a payroll tax that funds the Social Security program. If you work as an employee, your employer withholds it from your paycheck. If you're self-employed, you pay it directly to the IRS when you file taxes. The rate is 12.4 percent of your wages — your employer pays half (6.2 percent) and you pay the other half (6.2 percent). Self-employed workers pay the full 12.4 percent themselves, though they can deduct half of it when calculating their income tax.

You only pay Social Security tax on earnings up to a certain limit each year. That limit changes annually and is called the wage base. In 2024, the wage base is $168,600, meaning you pay Social Security tax on the first $168,600 you earn in a year, but not on anything above that. Once you hit that limit, your employer stops withholding Social Security tax from your paychecks for the rest of the year.

Not all income counts toward Social Security tax. Wages from a job do. Investment income, rental income, and certain other earnings do not. If you have multiple jobs, you pay Social Security tax on earnings from each one separately, up to the annual wage base for each.

Key Takeaways

  • Social Security tax is 12.4 percent of your wages, split between you and your employer if you work for someone else.
  • You only pay Social Security tax on earnings up to the annual wage base, which was $168,600 in 2024 and increases most years.
  • Self-employed workers pay the full 12.4 percent themselves but can deduct half of it as a business expense on their tax return.
  • The tax you pay now builds your Social Security record, which determines how much you receive in retirement or disability benefits later.

How the wage base works and when you stop paying

The wage base is the maximum amount of your annual earnings subject to Social Security tax. The Social Security Administration sets this limit each year based on average wage growth in the country. If you earn $168,600 in 2024, you pay Social Security tax on all of it. If you earn $200,000, you pay Social Security tax only on the first $168,600; the remaining $31,400 is not subject to Social Security tax.

Once you reach the wage base in a calendar year, your employer stops withholding Social Security tax from your paychecks. This usually happens automatically — your payroll department tracks your year-to-date earnings and stops the withholding when you cross the threshold. If you have multiple jobs and reach the wage base at one job, you may still owe Social Security tax at your other job. When you file your tax return, you can claim a credit for any excess Social Security tax you paid across all jobs.

High earners and people with multiple jobs sometimes overpay Social Security tax during the year. The IRS refunds the overpayment when you file your return, or you can claim it as a credit against your income tax.

Why you pay Social Security tax and what it funds

Social Security tax funds three main programs: retirement benefits, disability benefits, and survivor benefits. When you pay Social Security tax, you are building a record of earnings that the Social Security Administration uses to calculate your benefits later. The amount you receive in retirement depends partly on how much you paid in and for how long.

The program works on a pay-as-you-go basis: the taxes workers pay today fund benefits for current retirees and disabled workers. You are not building a personal account or savings fund. Instead, you are earning credits toward future benefits. In 2024, you earn one credit for every $1,730 in covered earnings, up to four credits per year. You need 40 credits (roughly 10 years of work) to be covered for retirement benefits, and fewer credits for disability or survivor benefits depending on your age when you become disabled or die.

Self-employed workers and Social Security tax

If you are self-employed, you pay Social Security tax through self-employment tax, which you calculate and pay when you file your annual tax return. Self-employment tax is 15.3 percent of your net self-employment income — 12.4 percent for Social Security and 2.9 percent for Medicare. You pay both the employee and employer portions yourself.

To calculate self-employment tax, you start with your net profit from self-employment (your business income minus business expenses). You then multiply that by 92.35 percent to get your net self-employment income, and apply the 15.3 percent rate to that figure. The Social Security portion applies only to net self-employment income up to the annual wage base; the Medicare portion applies to all net self-employment income with no upper limit.

Self-employed workers can deduct half of their self-employment tax as a business expense when calculating their adjusted gross income. This reduces the income tax you owe, though it does not reduce the self-employment tax itself. You report self-employment tax on Schedule SE (Form 1040) when you file your return.

How Social Security tax appears on your pay stub

If you are an employee, your pay stub shows Social Security tax as a separate line item in the deductions section. It is labeled as "Social Security" or "OASDI" (Old-Age, Survivors, and Disability Insurance). The amount withheld is 6.2 percent of your gross wages, up to the annual wage base. Your employer also pays 6.2 percent on your behalf, though that amount does not appear on your pay stub — it is a cost to the employer.

Your pay stub also shows Medicare tax, which is a separate 1.45 percent payroll tax with no wage limit. Together, Social Security and Medicare taxes are often called FICA taxes (Federal Insurance Contributions Act). Some pay stubs combine them into one line; others show them separately.

At the end of each year, your employer sends you a W-2 form that shows the total Social Security tax withheld during the year. This figure appears in Box 6 of the W-2. When you file your tax return, the IRS uses this information to verify that the correct amount was withheld.

What happens if you overpay or underpay Social Security tax

Overpayment usually happens when you have multiple jobs or change jobs during the year and earn more than the wage base across all employers. Each employer withholds Social Security tax independently up to the wage base, so if you work two jobs and earn $100,000 at each, you may pay Social Security tax on $168,600 at one job and $31,400 at the other, totaling more than the annual limit. When you file your tax return, you report all W-2 income and the IRS calculates the correct amount. You receive a refund or credit for the excess.

Underpayment can occur if you are self-employed and do not set aside enough money for self-employment tax, or if your employer makes a payroll error. If you underpay, you owe the difference when you file your return, plus interest and potentially penalties. If you realize during the year that you will underpay significantly, you can make estimated tax payments to the IRS to avoid a large bill at tax time.

If you believe your employer withheld the wrong amount, you can contact your payroll department or the IRS to investigate. The IRS has records of all W-2 forms filed in your name and can verify the amounts.

Frequently Asked Questions

Does Social Security tax apply to all types of income?

No. Social Security tax applies only to wages from employment and net self-employment income. It does not apply to investment income, rental income, interest, dividends, capital gains, or most other sources of income. Some government employees and railroad workers have different Social Security tax rules.

What happens to Social Security tax if I work part-time or have irregular income?

You pay Social Security tax on all wages you earn, regardless of whether you work full-time or part-time. If your income is irregular, you still pay the tax on each paycheck as you receive it. Self-employed workers with irregular income calculate self-employment tax based on their total net profit for the year, even if earnings fluctuate month to month.

Can I opt out of paying Social Security tax?

No, with very limited exceptions. Most workers must pay Social Security tax. Some government employees hired before specific dates and certain religious groups may have exemptions, but these are rare and require specific conditions. If you are unsure whether you may have access to for an exemption, contact the Social Security Administration or the IRS.

How does Social Security tax affect my retirement benefits?

The more you pay in Social Security tax over your working years, the higher your retirement benefit will be. The Social Security Administration calculates your benefit based on your 35 highest-earning years. If you work longer or earn more, your benefit increases. However, there is a maximum benefit amount, and very high earners do not see a proportional increase in benefits.

What if I paid too much Social Security tax across multiple jobs?

When you file your tax return, report all W-2 income from all jobs. The IRS calculates the correct total Social Security tax owed based on the annual wage base and refunds any excess you paid. You do not need to do anything special — the IRS handles this automatically when processing your return.