Social Security tax – also called old-age, survivors and disability insurance (OASDI) – applies to most income earners in the US. This includes the President, Vice President, federal judges, Congress, employers, employees and the self-employed. Unlike Medicare tax, which has no payment cap, you stop paying Social Security tax when you satisfy the required limit.
The Federal Insurance Contributions Act (FICA) , which governs the collection of Social Security and Medicare taxes, provides for the OASDI and hospital insurance (Medicare) systems. Though mostly a retirement program for retirees, Social Security also provides benefits to the disabled, beneficiaries of deceased employees and dependents of beneficiaries.
Employers withhold Social Security tax from employees' paychecks according to the tax rate and limit the government sets. The withholding rate for 2013 is 6.2 percent of gross income; the employer pays 6.2 percent. Self-employed individuals pay the entire 12.4 percent since they do not have an employer to contribute the remaining amount. Whether you are an employee or self-employed, you pay Social Security taxes until you reach the yearly wage base ($113,700 for 2013). Once you have met the annual limit, you stop paying Social Security taxes until the start of the next year.
A few employees are exempt from Social Security tax, in which case the employer does not withhold it from their paychecks. Non-immigrant and non-resident employees with specific classes of visas, such as A-visas, D-visas and F-visas; and individuals who work for a school, college or university at which they are also a student are exempt.
Your employer reports Social Security wages and taxes withheld for the year in Box 3 and 4, respectively, of the W-2 form. If you are a tipped employee, your employer reports your tips, which are subject to Social Security tax, in Box 7 of your W-2. Your employer files the W-2 with the Social Security Administration.
When you file your annual income tax return with the Internal Revenue Service (IRS), depending on your withholding conditions (such as allowances and filing status), you might qualify for a tax refund on your federal income tax withholding. You do not get a refund on your Social Security tax withholding. Your payments are put into the Social Security system and are used to pay benefits to qualified individuals.
- Social Security Administration: Social Security and Medicare Tax Rates
- Internal Revenue Service: Foreign Student Liability for Social Security and Medicare Taxes
- Internal Revenue Service: Student Exception to FICA Tax
- Money Zine: FICA Tax
- Social Security Administration: Understanding the Benefits
- Internal Revenue Service: W-2 Form