The 2018 social security tax rate is 6.2% on a wage base of $128,700. This rate is paid by both the employee and the employer, for a total tax of 12.4%.
The social security tax began with the passage of the Social Security Act in 1935, which established Old Age and Survivor's Insurance. The insurance was to be funded by compulsory deductions from the pay of wage earners. Initially, these deductions were set at 1% of gross wages, and were to be paid by both the employer and the employee, and would continue until retirement age, which was set at 65. By 1948, the amount of these deductions had increased to 3%. Employers have been and continue to be responsible for withholding the social security tax from employee pay.
The tax rate for social security is now governed by the Federal Insurance Contributions Act (FICA). Because of this association, social security taxes are now closely associated with the acronym "FICA".
In addition, the Social Security Act also created the Federal Unemployment Trust Fund. This fund was supported by additional withholdings from employee wages, and was designed to assist the states with their unemployment insurance plans. Later updates have increased the coverage of the unemployment fund, from its original coverage of only those employees engaged in industrial or commercial occupations.
Social Security Tax Rates
The following table can be used to determine the social security tax rate, as well as the upper limit on the amount of taxable earnings to which the tax applies. For example, on earnings of $150,000 in 2018, the amount of employer tax paid would be $7,979.40, which is calculated as follows:
6.2% Tax rate x $128,700 Wage cap = $7,979.40
|Tax Year||FICA Tax Rate||Wage Cap|
|2012||4.2% Employee / 6.2% Employer||110,100|
|2011||4.2% Employee / 6.2% Employer||106,800|
Note that Social Security is matched by the employee, so the total tax amount paid to the government by the employer is 12.4% (with the exceptions of 2011 and 2012, as noted in the preceding table). A self-employed person is responsible for paying the full amount of the 12.4%.
The social security tax is also known as the FICA tax.