What Is the Soc Tax and How Does It Work?
This guide explains the fundamentals of the Social Security tax, clarifying how it is calculated, who is responsible for paying it, and how it applies to income.
The term “soc tax” is commonly used to refer to the Social Security tax, a mandatory federal payroll deduction. This tax is a primary funding mechanism for the Social Security program, which provides financial support for retirement, disability, and survivor benefits. It is one of two distinct taxes authorized under the Federal Insurance Contributions Act (FICA), the other being the Medicare tax. The structure of this tax involves contributions from both employees and employers, and for those who work for themselves, a separate but equivalent system is in place.
Employee and Employer Contributions
The responsibility for funding Social Security is shared between employees and their employers. For 2025, the Social Security tax rate is 6.2% for the employee, which is withheld directly from their gross wages. The employer is also required to contribute an equal amount, paying a matching 6.2% tax on the employee’s behalf.
This system ensures that for every dollar of earnings subject to the tax, a total of 12.4% is contributed to the Social Security program. When an employee receives a pay stub, they will see this deduction itemized, often labeled as “Social Security,” “SS,” or “OASDI” (Old-Age, Survivors, and Disability Insurance). In some cases, it may be grouped with the Medicare tax under a single “FICA” line item.
The employer is responsible for remitting both the employee’s withheld amount and the employer’s matching contribution to the Internal Revenue Service (IRS). The annual total of Social Security tax withheld is reported to the employee on their Form W-2 in Box 4.
The Social Security Wage Base Limit
A defining feature of the Social Security tax is its annual earnings limit, known as the wage base limit. For 2025, the Social Security wage base limit is $176,100. This means that once an employee’s year-to-date gross earnings exceed this threshold, no further Social Security tax will be withheld from their paychecks for the remainder of the year. The employer’s matching contribution also ceases once the employee’s wages surpass the limit.
The wage base limit is adjusted annually by the Social Security Administration to account for changes in the national average wage index. This ensures that the program’s funding base keeps pace with inflation and wage growth over time. The maximum Social Security tax an employee would pay in 2025 is $10,918.20, which is 6.2% of the $176,100 limit. Any earnings above this amount are not subject to the Social Security portion of FICA tax, although the Medicare tax continues to apply to all earnings.
An issue can arise for individuals who work for more than one employer in a year. Each employer is required to withhold Social Security tax up to the annual limit, without regard to what another employer has withheld. This can result in a total withholding that exceeds the maximum if the employee’s combined income from all jobs is greater than the wage base limit.
When this overpayment occurs due to having multiple employers, the individual can claim a credit for the excess amount when filing their annual federal income tax return. The excess withholding is calculated and reported on Schedule 3 (Form 1040). If the overpayment was due to an error by a single employer, the employee must seek a refund directly from that employer.
The Tax for Self-Employed Individuals
Individuals who work for themselves, such as independent contractors or freelancers, are also required to contribute to the Social Security system. Their contributions are made through the Self-Employment Contributions Act (SECA) tax, which is the equivalent of the FICA taxes paid by employees and employers. If a self-employed individual has net earnings of $400 or more, they are required to file and pay SECA taxes.
Under SECA, the Social Security tax rate is 12.4%, which combines the employee and employer shares. The same annual wage base limit that applies to employees also applies to the self-employed. The calculation of SECA tax is performed on Schedule SE (Form 1040).
A key aspect of the SECA tax rules is a deduction that helps to equalize the tax treatment between self-employed individuals and employees. Self-employed individuals can deduct one-half of their total self-employment tax paid when calculating their adjusted gross income (AGI). This deduction is an acknowledgment that employers get to deduct their share of FICA taxes as a business expense.
This deduction is taken directly on Form 1040 and is considered an “above-the-line” deduction, meaning it can be claimed even if the individual does not itemize deductions. The SECA tax itself, calculated on Schedule SE, is then added to the individual’s income tax liability on their Form 1040.