Common Social Security Tax Questions Answered

Social Security tax is a mandatory payroll deduction funding the Social Security program’s retirement, disability, and survivor benefits. This tax is levied on earnings from employment or self-employment, affecting both take-home pay for workers and tax obligations for businesses.

This article addresses how Social Security tax is calculated and paid, covering the rules for employees and the self-employed. It also clarifies how to recover excess tax payments and explains how Social Security benefits are subject to income tax during retirement.

The Basics of Social Security Tax on Earnings

The money withheld for Social Security is part of the Federal Insurance Contributions Act (FICA) tax, which also includes Medicare tax. While often grouped together, these two taxes have different rules and rates. The Social Security portion is designated to fund the Old-Age, Survivors, and Disability Insurance (OASDI) program.

For employees, the Social Security tax is a shared responsibility. The total tax rate is 12.4%, split evenly, with the employee paying 6.2% of their gross wages and the employer paying a matching 6.2%. This amount is automatically deducted from each paycheck by the employer, who remits the full 12.4% to the government. On a pay stub, this deduction is labeled as “OASDI” or “Social Security.”

A feature of the Social Security tax is the annual wage base limit, an income threshold adjusted most years for inflation, beyond which taxes are no longer withheld. For 2025, the Social Security wage base limit is $176,100. An employee pays the 6.2% tax only on the first $176,100 of their earnings in a calendar year, and any income above this amount is not subject to the tax.

For example, an employee who earns $200,000 in 2025 will have the 6.2% tax applied only to the first $176,100 of their salary. The total Social Security tax they pay for the year is $10,918.20 ($176,100 x 6.2%), and their employer pays an identical amount. The remaining salary is not subject to Social Security tax, though it is still subject to Medicare tax, which has no wage limit.

Once an employee’s year-to-date earnings reach the annual limit, the employer’s payroll system automatically stops the Social Security withholding. This results in a temporary increase in take-home pay for higher-earning employees. The withholding resumes on the first paycheck of the next calendar year.

Social Security Tax for the Self-Employed

Individuals who work for themselves, such as independent contractors or freelancers, are subject to rules under the Self-Employment Contributions Act (SECA). Unlike employees, self-employed individuals are responsible for paying the entire Social Security tax obligation themselves, covering both the employee and employer portions.

The SECA tax rate for Social Security is 12.4%, the full combined rate. This is in addition to the 2.9% Medicare component, making the total self-employment tax rate 15.3%. This tax is calculated on the net earnings from self-employment, which is business income minus ordinary business expenses.

The tax calculation includes two adjustments for parity with the FICA system. First, the Social Security tax is not calculated on 100% of net profit but is instead applied to only 92.35% of net self-employment earnings. This accounts for employees not paying FICA tax on their employer’s matching contribution.

The second adjustment allows the self-employed to deduct one-half of their total SECA tax paid when calculating their adjusted gross income (AGI) on Form 1040. This is an above-the-line deduction, meaning it can be taken without itemizing. This deduction is analogous to the employer’s portion of FICA taxes being a deductible business expense.

For example, a consultant with $150,000 in net earnings in 2025 first calculates their taxable base by multiplying net earnings by 92.35%, resulting in $138,525. Since this is below the 2025 wage base limit of $176,100, the entire $138,525 is subject to the 12.4% Social Security tax, for a total of $17,177.10. They could then deduct half of their total SECA tax on their Form 1040.

Handling Excess Social Security Tax Withholding

It is possible for a taxpayer to have too much Social Security tax withheld over a year. This situation rarely happens with a single employer, as their payroll system should cease withholding once the wage base limit is reached. The most common scenario for overpayment involves an individual working for two or more employers in the same calendar year.

When a person has multiple jobs, each employer withholds Social Security tax independently based only on the wages they have paid. If the employee’s total combined earnings from all jobs exceed the annual wage base limit, the cumulative tax withheld will be more than the legal maximum.

For instance, assume in 2025 an individual earns $120,000 from Company A and $80,000 from Company B. Company A would withhold $7,440 ($120,000 x 6.2%), and Company B would withhold $4,960 ($80,000 x 6.2%), for a total of $12,400. However, the maximum tax for 2025 is $10,918.20 ($176,100 x 6.2%), resulting in an overpayment of $1,481.80.

This overpayment is not refunded by the employers. Instead, the taxpayer must claim the excess amount as a refundable credit on their federal income tax return using Schedule 3 (Form 1040). This credit reduces the taxpayer’s total tax liability or increases their refund. If a single employer withholds too much in error, the employee must seek a refund directly from that employer.

Taxation of Social Security Benefits

The rules for income tax on Social Security benefits are separate from the FICA and SECA taxes paid on earnings. While working, individuals pay Social Security tax on income. In retirement, a portion of the benefits they receive may be subject to federal income tax, depending on their total income level.

The taxability of benefits is determined by a taxpayer’s “combined income,” also called provisional income. To calculate it, you take your Adjusted Gross Income (AGI), add any nontaxable interest, and then add one-half of your total Social Security benefits for the year. The formula is: Combined Income = AGI + Nontaxable Interest + 50% of Social Security Benefits.

The IRS has established income thresholds to determine what percentage of benefits is taxable. These thresholds are based on filing status and are not indexed for inflation, meaning more beneficiaries become subject to the tax over time. For 2025, if you file as an individual and your combined income is below $25,000, your benefits are not taxable; for joint filers, this threshold is $32,000.

If a single filer’s combined income is between $25,000 and $34,000, up to 50% of their Social Security benefits may be subject to income tax. For married couples filing jointly, this range is $32,000 to $44,000. If a single filer’s combined income exceeds $34,000, or a joint filer’s exceeds $44,000, up to 85% of their benefits may be taxable.

Consider a married couple filing jointly with an AGI of $40,000 and $20,000 in Social Security benefits. Their combined income is $50,000 ($40,000 AGI + 50% of $20,000 benefits). Since $50,000 is above the $44,000 threshold for joint filers, up to 85% of their benefits will be included in their taxable income.