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SmartAsset: What Is the Social Security Tax?

The Social Security tax is one reason your take-home pay is less than your income. The tax of 6.2% (on income up to $147,000 in 2022 and $160,200 in 2023) is deducted from your pay and appears on your paycheck stub either as FICA or Fed OASDI/EE. Your employer also pays 6.2%, making for a total Social Security tax of 12.4% per employee. Read on to learn what the pay-stub acronyms stand for, whether the self-employed have to pay the tax and if there’s any way to avoid paying it.

A financial advisor can help you optimize your financial plan for your tax planning needs.

Social Security is one of the largest government programs in the U.S., accounting for just under a quarter of federal spending. Roughly one in four Americans are collecting some kind of Social Security retirement benefit each month, and all of the money has to come from somewhere. That’s where the Social Security tax comes in.

What Is the Social Security Tax?

The Social Security tax is the money that gets withheld from your earned income to fund Social Security benefits. You pay a portion of your salary, currently 6.2%, and your employer pays a portion, currently an equal amount. The combined contributions from employees and employers across the country then go to the Social Security Trust Funds, which basically pay for retiree benefits. The idea is that you contribute to Social Security benefits while you’re working. Then, once you retire, current workers will contribute to your benefits. That way, the system can sustain itself.

The Social Security tax is also known as Old-Age, Survivors and Disability Insurance (OASDI) taxes. (The EE after OASDI on a pay stub signifies the employee’s share of the tax.) The tax, along with Medicare taxes, is under the Federal Insurance Contributions Act (FICA), which is why the deduction may be labeled as FICA.

SmartAsset: What Is the Social Security Tax?

How Much Is the Tax?

As noted earlier, the Social Security tax is usually 12.4% of your income. In general, your employer pays 6.2% and you pay the other 6.2%. An exception would be if you’re self-employed, in which case you are responsible for the entire 12.4% minus an above-the-line deduction that amounts to 6.2%. You can refer to the below table to see the tax amount for a range of salaries.

Salary Social Security Tax Amount
$30,000 $1,860
$50,000 $3,100
$75,000 $4,650
$100,000 $6,200
$150,000 $9,114
$200,000 $9,114

You’ll notice that Social Security taxes on the last two salaries are the same amount, and neither is a full 6.2%. That’s because there is a cap on how much Social Security tax you have to pay. The IRS will only levy the tax on $147,000 ($160,200 in 2023) of your income. This means you won’t have to pay more than $9,114.

Because of this cap, workers with salaries higher than $147,000 will pay a lower effective percentage of their salary. For instance, a worker with a $200,000 salary will only be paying 4.56% of his or her salary.

Why Do You Pay Social Security Tax?

Workers have to pay the Social Security tax for the same reason we have to pay any sort of tax: to support government programs in our society. Social Security benefit payments are, in essence, money that we receive from the government. Since more than 60 million people are currently receiving benefits, that’s a lot of money the government has to spend. To foot the bill, the government can do two things: create the money or collect it through taxes.

Printing enough money every month to pay all Social Security benefits is effectively impossible. Inflation would skyrocket to catastrophic levels in no time at all. Therefore, collecting the money through taxation is really the only option.

In broad strokes, the idea of the Social Security tax is a reasonable one. Even though you have to cough up part of your paycheck now, you will eventually get that money back when you’re on the receiving end of the system. Things are a bit more complicated when we depart from the general assessment, but the overarching theory makes sense.

SmartAsset: What Is the Social Security Tax?

Are There Ways to Avoid Social Security Tax?

Not everyone has to pay the Social Security tax. If you are a nonresident alien, either as a student or an employee of a foreign government, then you won’t have to worry about paying. Furthermore, if you are part of a religious group that opposes the receipt of Social Security benefits, then you won’t have to pay either.

However, these are all rare circumstances. Plus, these people won’t receive Social Security benefits in retirement. If you want to avoid paying the Social Security tax but still receive  benefits when you retire, you should know that the amount you’ve paid into the system determines your benefits to some degree.

Tips for Saving for Retirement

  • If you’re feeling overwhelmed by the age and eligibility requirements for Social Security benefits, our Social Security calculator may help. After you fill in your info, we’ll tell you what you can expect in annual benefits once you retire.
  • In any retirement conversation, it’s important to be mindful of the retirement tax laws in the state you live in. Taking your state’s laws into account can make a significant difference as you plan for retirement.
  • If you already have some money to spare, you could grow it with the help of a financial advisor. SmartAsset’s Free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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Hunter Kuffel, CEPF® Hunter Kuffel is a personal finance writer with expertise in savings, retirement and investing. Hunter is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. He graduated from the University of Notre Dame and currently lives in New York City.
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