Legal Definitions - Social Security tax

Social Security tax is a tax on wages that helps fund the Social Security program. It is also known as FICA tax. The tax rate is 12.4% of an employee's wages, but it is split between the employee and employer, with each paying 6.2%. The tax only applies to wages up to a certain amount, called the maximum wage base, which changes every year. In 2021, the maximum wage base is $142,800. This means that any wages above $142,800 will not be subject to Social Security taxes.

Let's say that John earns $50,000 per year. His employer will deduct 6.2% from his paycheck for Social Security tax, which amounts to $3,100 per year. John's employer will also pay 6.2% of his wages, or $3,100 per year, to the Social Security program. If John earns more than $142,800 in 2021, only the first $142,800 of his wages will be subject to Social Security taxes.

Another example is if Jane is self-employed and earns $200,000 in 2021. She will have to pay the full 12.4% Social Security tax on her entire income, which amounts to $24,800.

These examples illustrate how Social Security tax works and how it is calculated based on an employee's wages or a self-employed individual's income.