The Social Security tax is designed to collect money from the current generation of workers to pay for the current retirement benefits. Income taxes are not used to pay for Social Security benefits. The tax rate you pay depends if you are self-employed or if you work for an employer.
Total Social Security Tax
The Social Security tax rate is 10.4 percent for the tax year 2012. This tax is only applied to the first $110,100 you make. In 2013, the wage limit rises to $113,700.
If you work for an employer, the employer must pay 6.2 percent and the employee must pay 4.2 percent.
Self-employed workers are responsible for the entire 10.4 percent of the social security tax.
The Medicare tax is closely linked to the Social Security tax, but applies to all earned income and the tax is split between employer and employee.
Medicare Tax Rate
The Medicare tax rate for 2012 is 2.9 percent, meaning if a person is employed by a company, 1.45 percent is paid by each. If a person is self-employed, he must pay the entire 2.9 percent.
2013 Additional Medicare Tax
Beginning in 2013, there will be an additional .9 percent Medicare tax imposed upon single persons earning more than $200,000 and persons who are married filing jointly earning more than $250,000. The additional tax is in addition to the 1.45 percent Medicare tax employees pay on all their earnings. The employer does not have to match the .9 percent Medicare tax.