The Social Security tax is a federal tax imposed on employers, employees and self-employed individuals. It is used to pay the cost of benefits for elderly recipients, survivors of recipients, and disabled individuals (OASDI Insurance). Social Security tax is one of the payroll taxes paid by employees, employers, and self-employed individuals each year. The Social Security tax rate is 12.4 percent; 6.2 percent is withheld from each of the employer and employee, while the full 12.4 percent is paid by self-employed individuals.
Social Security taxes are withheld up to a maximum amount, which changes each year. Here are the annual maximum amounts to date:
- 2008 $102,000
- 2009 $106,800
The term "Social Security tax" or "OASDI" is often confused with "FICA taxes," which include both Social Security and Medicare taxes. The Medicare tax rate is 1.45 percent for both employers and employees, with the self-employed Medicare rate at 3.3 percent.
