You may be wondering how the Social Security tax withholding is calculated on each of your paychecks. Denoted as FICA on your paycheck, the Social Security tax is required by law, of all who earn income.
Social Security Tax Withholding is Called FICA
The FICA that’s taken out is a combination of Social Security tax and Medicare tax…both of which are designed to help you get through retirement via monthly benefits.
- Social Security tax funds the Old-Age , Survivors, and Disability Insurance (OASDI) program.
- Medicare tax funds the Hospital Insurance (HI) program.
Together, Medicare and Social Security tax withholding form what’s commonly known as the Employment tax.
How Your Employer Calculates the Social Security Tax Withholding
It can be outsourced to a payroll company, but many small business employers figure out the withholding amounts themselves, in order to come up with your paycheck each pay period. They may use tax withholding tables to help them figure out the amounts.
The tax withholding tables are published new for each year in December for the following year. Look for IRS Notice 1036, where they are officially announced for the first time. They will be then released again in IRS Publication 15 (Circular E), which is the Employer’s Tax Guide. Both are found at www.IRS.gov
Percentage Method for Social Security Tax Withholding
The employer simply takes your check amount and does the following, in order to use the Percentage Method for figuring withholding:
- start with amount of check
- finds out number of allowances for that employee (look on W4 Form)
- multiply allowances x value of each allowance (from income tax tables)*
- subtract that number from the wages
- look up the resulting amount on the “Percentage Method Tables for Income Tax Withholding” found in Notice 1036 or Pub 15.
- Use the formula and amounts shown for that paycheck range, to figure withholding
*For example, in 2014, one withholding allowance is worth $151.90 on a Biweekly paycheck. These dollar amounts vary according to how often the paychecks go out. For a weekly payroll period, each allowance is worth $76.
Social Security Tax Withholding is Based On…
These calculations for withholding are based on a 6.2% rate taken out of your paycheck. That’s your contribution for employment taxes. Your employer will also pay that same amount, for their share of the employment tax. Their share is equal to your share, 6.2%.
In 2011 and 2012 the employee portion of Social Security tax withholding went down by two percentage points to 4.2%. The rate is now fixed at 6.2% and will likely remain at that rate for quite some time. The Social Security tax rate doesn’t change all that often.