An HR Glossary for HR Terms
Glossary of Human Resources Management and Employee Benefit Terms
What is Social Security Tax?
Social Security Tax Overview
Social Security tax is a type of payroll tax paid by employers and employees—including self-employed individuals—to fund the U.S. Social Security program. The Society Security tax is one of two types of taxes required under the Federal Insurance Contributions Act (FICA).
Most employers automatically withhold Social Security taxes from employees’ paychecks and send it to the government. The money goes into a general Social Security fund to pay Social Security benefits for current retirees. That means employees don’t have their own individual Social Security fund but are paying into the general fund to use as needed. It’s the employer’s responsibility to withhold and forward the correct amount of money, or they could be subject to a penalty.
Why Do I Have to Pay the Social Security Tax?
The Society Security tax is mandated under the Federal Insurance Contributions Act (FICA). The goal is for current workers to support older and retired workers in cases of disability and retirement. The Social Security tax funds the Social Security program, which pays for retirement, disability, and survivorship benefits to more than 65 million Americans every month.
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Does Everyone Pay the Social Security Tax?
The Social Security tax applies to all employees, employers, and self-employed individuals. However, there are certain exemptions, including:
- People who belong to religious groups that oppose receiving Social Security benefits
- Nonresidents who are in the U.S. temporarily as students
- Students who work at the school they attend if their job is contingent on continued enrollment
Can I Opt Out of the Social Security Tax?
While opting out of the Social Security tax is possible, it is very difficult. The most common reason to opt out of paying the tax is for a religious exemption for employees who belong to religious groups that oppose Social Security. That process requires multiple forms and is limited to religious groups established before 1950 that provide their members with a decent standard of living. Nonresidents can also potentially opt out after a lengthy paperwork process. Employees who don’t contribute to Social Security while they are working can’t collect the benefits when they retire.
When Can I Claim Social Security Benefits?
The eligibility age for full Social Security benefits is 65. However, it’s possible to apply as early as age 62 and receive a reduced monthly benefit until the official retirement age. Employees can also choose to defer Social Security benefits until age 70 in exchange for an increased monthly benefit.
Employees who can no longer work due to injury or disability may also apply for Social Security benefits.
Is the Social Security Tax the Same as a 401(k)?
Although Society Security tax and 401(k) contributions both typically come out of a paycheck, they are completely separate. A 401(k) is an individual retirement plan where employees make tax-exempt contributions. Many employers match contributions from an employee. Any money contributed to a 401(k) goes into the employee’s personal retirement account, while the Society Security tax is added to a general fund where eligibility standards and payout amounts depend upon federal regulations, not the amount contributed.
Is the Social Security Tax the Same as Income Tax?
No, these two types of taxes are separate. The Social Security tax is deducted before income tax is applied, so employees aren’t paying double taxes on the same money. For example, an employee who earns 50,000 dollars a year will have 3,100 dollars deducted for Social Security. They will then only have to pay income tax on the remaining income, which is 46,900 dollars. Employees in states that don’t collect income tax still have to pay the Social Security tax.
How Much Is the Social Security tax?
In 2022, the Social Security tax was 12.4 percent, with the employer and the employee each paying half (6.2 percent). Self-employed individuals pay both sides of the tax. This tax rate applies to all types of earned income, including salaries, wages, and bonuses, up to a certain amount that changes yearly.
In 2022, only the first 147,000 dollars in annual income was subject to Social Security tax. This amount increased to 160,200 dollars in 2023.
Can I Get a Refund on Social Security Taxes Paid?
Employees can get some of their Social Security tax back if they or their employer overpaid. To claim this refund, you’d need to first talk to your employer and then file a form with the IRS. Getting a refund for overpaid Social Security tax is rare but typically occurs if an employee worked multiple jobs in a year and reached the Social Security tax limit with their combined earnings.
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