Social Security Tax
In the United States, both employers and employees are subject to the Social Security Tax, which is also referred to as the Federal Insurance Contributions Act (FICA) tax. It is a key component of the Social Security program, which provides retirement, disability, and survivor benefits to eligible individuals. The tax is designed to fund these benefits and ensure the long-term sustainability of the Social Security system.
On employees’ pay-checks, Social Security Tax is typically deducted from their wages or salary. Up to a certain income threshold, the tax is calculated as a percentage of their earnings. Employees are subject to a deduction of 6.2% of their earnings for Social Security purposes at the current rate of 6.2%. The total Social Security Tax rate is 12.4% because the employee contributes an equal amount of 6.2% on behalf of the employer.
The Social Security Wage Base is the annual income cap that governs the Social Security Tax. The maximum amount of earnings subject to taxation is represented by this limit, which is adjusted annually. Social Security Tax is not levied on earnings above this threshold. It is essential to keep in mind that the Medicare tax, which is another payroll tax that helps pay for the Medicare health insurance program, is distinct from the Social Security tax.
The Social Security Tax is used to pay for current benefits for eligible retirees, disabled people, and workers’ surviving spouses and children. The Social Security Administration is in charge of managing the Social Security Trust Funds, which receive the tax revenues. These funds are invested and used to pay benefits to people who are eligible when they become eligible.
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