Who Pays Social Security Tax? Employees and Employers Both Contribute

Social Security tax funds benefits for retirees, disabled individuals, and survivors of deceased workers. Both employees and employers contribute, ensuring steady funding throughout a worker’s career.

Understanding how contributions are structured helps individuals and businesses plan for payroll costs and net earnings.

Employer Contribution

Businesses must contribute 6.2% of each employee’s wages to Social Security, up to the 2024 wage base of $168,600. If an employee earns $100,000, the employer pays $6,200. For those earning above the wage base, the maximum employer contribution is $10,453.20.

These payments are mandatory and must be remitted through payroll tax deposits, typically on a semi-weekly or monthly schedule. Late deposits can result in penalties ranging from 2% to 15% of the unpaid amount.

Employers must also maintain accurate records and correctly classify workers. Misclassifying employees as independent contractors to avoid tax obligations can lead to audits, back taxes, and penalties. The IRS evaluates classification based on behavioral and financial control, as well as the nature of the working relationship.

Employee Withholding

Employees have 6.2% of their wages withheld for Social Security, up to the wage base of $168,600. For an employee earning $60,000, this means $3,720 is deducted annually. Earnings beyond the wage base are not subject to Social Security tax.

Employers handle withholding, but employees should review pay stubs for accuracy. Over-withholding can occur if someone has multiple jobs and their combined earnings exceed the wage base. In such cases, excess Social Security tax can be reclaimed when filing a tax return.

Self-employed individuals pay both the employee and employer portions, resulting in a higher tax burden. However, deductions help offset some of the cost.

Combined Tax Rate

The total Social Security tax rate in 2024 is 12.4%, split evenly between employees and employers. This rate is set by law and can only be changed by Congress.

For businesses, Social Security taxes add to payroll costs, influencing hiring decisions and salary planning. Employees see only their half deducted, but the total contribution is twice what appears on their pay stubs.

Independent contractors and freelancers, who pay the full 12.4% through self-employment tax, bear a greater financial impact. Without an employer to share the burden, tax planning is essential to managing net earnings.

Wage Base Threshold

Social Security tax applies only up to a set income limit. In 2024, the wage base is $168,600. Earnings beyond this amount are not taxed for Social Security, though Medicare tax still applies to all income.

For high earners, this cap limits Social Security tax liability. An employee making $200,000 is taxed only on the first $168,600, leaving $31,400 untaxed for Social Security purposes. Because the wage base restricts how much high earners contribute, lower-wage workers pay a higher percentage of their income toward Social Security.

Self-Employment Implications

Self-employed individuals pay both the employee and employer portions of Social Security tax, totaling 12.4%, plus an additional 2.9% for Medicare. This results in a combined self-employment tax rate of 15.3%.

The tax is calculated on net earnings, meaning business expense deductions can reduce taxable income. Self-employed individuals can also deduct the employer-equivalent portion—6.2% for Social Security and 1.45% for Medicare—when determining adjusted gross income. While this deduction does not reduce self-employment tax, it lowers taxable income for federal income tax purposes.

Without automatic paycheck withholding, self-employed workers must make estimated quarterly tax payments to avoid penalties. Proper record-keeping and strategic tax planning, such as maximizing deductible expenses or contributing to tax-advantaged retirement accounts, can help manage these obligations.

Reporting Obligations

Employers must file Form 941, the Quarterly Federal Tax Return, to report wages and Social Security taxes withheld. This form is due quarterly and helps the IRS track payroll tax compliance. At year-end, employers issue Form W-2 to employees, detailing total earnings and tax withholdings. This data is also submitted to the Social Security Administration to ensure accurate benefit calculations.

Self-employed individuals report Social Security tax using Schedule SE, filed with their annual Form 1040 tax return. Errors in reporting, such as miscalculating net earnings or missing deadlines, can lead to penalties and interest charges. Maintaining accurate records, using accounting software, or consulting a tax professional helps ensure compliance.