How Is Social Security Tax Calculated?

An income cap limits the tax on your income

Reviewed by Andy Smith
Fact checked by Suzanne Kvilhaug

The Old Age, Survivors, and Disability Insurance (OASDI) tax, more commonly referred to as the Social Security tax, is calculated as a percentage of a worker’s income. The tax is deducted from employee paychecks. Self-employed individuals pay quarterly tax payments.

Employees and employers each pay a Social Security tax rate of 6.2% of employee compensation for a total of 12.4% as of the 2025 tax year. Those who are self-employed contribute the full 12.4%.

Key Takeaways

• Social Security is the federal program that provides benefits to retirees and those unable to work due to a disability.
• Benefits are funded by withholding tax deducted from workers’ paychecks.
• The maximum amount of individual income subject to the Social Security tax is $176,100 in 2025.

What Is Social Security?

The combined taxes withheld for the Social Security and Medicare programs are referred to as Federal Insurance Contributions Act (FICA) taxes. On an employee’s pay stub, OASDI refers to the Social Security tax, and Fed Med/EE refers to the Medicare tax.

Social Security is the federal program that provides benefits to retirees and those unable to work due to a disability. It is funded by a withholding tax deducted from each worker’s paycheck.

Workers who have contributed for at least 10 years are eligible to collect benefits based on their earnings history when they reach retirement age or if they become disabled. Social Security benefits are limited to a maximum monthly benefit amount based on an individual’s earnings history.

How Social Security Is Funded

There is a limit or tax cap on the amount of earned income subject to taxation. The maximum amount is $176,100 in 2025. Employees and employers each contribute 6.2% of employee compensation, and those who are self-employed contribute the full 12.4%. That caps the maximum annual employee contribution at $10,918.20.

Wages include salaries, bonuses, commissions, and paid time off, such as vacation or sick leave. Elective contributions to a qualified retirement plan are also subject to FICA tax. Employer-paid accident or health insurance premiums for an employee and the employee’s spouse and dependents are not wages and are not included in the FICA tax. Health Savings Account (HSA) contributions made by the employer are also not considered wages.

An individual who earns $30,000 per year contributes $4,000 to a 401(k) plan. The employer matches 5% of that, or $200. As far as Social Security is concerned, the individual’s income is $30,000 because their elective deferral contribution is subject to the tax. The additional $200 contributed by the employer is not. The Social Security tax withheld from the employee is $1,860 ($30,000 x .062). If another individual earns $180,000 per year or $15,000 per month, the maximum that can be taxed for Social Security is $176,100 in 2025 or $14,675 per month.

Important

An individual may overpay the tax if they have earnings from more than one employer and the combined total exceeds the cap. Any overpayment amount is applied to the individual’s federal tax bill or is refunded.

Social Security Policies

The Social Security program was established in 1935, with a 1% payroll tax that began on January 1, 1937. The rate has steadily risen, reaching 3% in 1960 and 5% in 1978. The employee portion increased from 6.06% to 6.2% in 1990.

Additional increases to the tax cap in 1955, 1959, and 1965 were designed to address the difference in benefits between low-wage and high-wage earners. The 1972 Social Security Amendments Act was corrected to fix problems with the benefits formula. A 1977 amendment resolved the financial shortfall and established a tax cap increase structure that correlated with average wage increases.

Economists, politicians, and individuals worry that Social Security could become insolvent due to longer life expectancies and shrinking worker-to-retiree ratios. A common complaint about the Social Security tax is that it is a regressive tax. An individual who earns under $176,100 in 2025 pays a 6.2% Social Security tax rate on their entire income. Someone who earns $200,000 per year pays that same percentage on just the first $176,100 of their income. The additional $23,900 over and above the $176,100 cap is effectively FICA tax-free.

Taxes on Benefits

Americans pay federal income taxes on part of their Social Security benefits if their total income is higher than the threshold for taxation of their benefits. The taxable amount is based on an individual’s total adjusted gross income plus half of their Social Security benefits.

Recipients pay income tax on a portion of their benefits if half of their benefits plus earned income exceeds $25,000 a year if single or $32,000 a year if married and filing jointly. Social Security benefits are tax-free below $25,000 for single filers or less than $32,000 for joint filers. Those who are single with a combined income of more than $34,000 must pay income tax on 85% of their benefits. If married with a combined income over $44,000, income tax is 85% of their benefits.

Individuals receive Form SSA-1099 from the Social Security Administration every January detailing the financial benefits they received in the previous year. They use this information when filing their annual tax returns.

Those who expect to owe taxes on their Social Security benefits can either make quarterly estimated tax payments to the IRS or have federal taxes withheld.

Is OASDI the Same As Social Security?

OASDI is the official name for Social Security. It’s an acronym for Old Age, Survivors, and Disability Insurance.

What Is the Maximum Social Security Benefit?

Social Security benefits increase as individuals postpone their retirement. For example, workers with the maximum taxable earnings who retire at age 66 will receive $3,795 per month in 2025. The same person will receive $5,108 per month if they wait to collect until age 70. The benefits increase by 8% every year from age 62 to 70. There is no incentive to delay past age 70.

What Is a Cost of Living Adjustment (COLA)?

Social Security benefits increased by 2.5% in 2025 due to a COLA. A cost-of-living adjustment (COLA) is an increase made to Social Security benefits to counteract the effects of inflation and rising prices in the economy.

The Bottom Line

The Social Security (OASDI) tax is divided between employees and employers, each contributing 6.2% of an employee’s wages. Income over a certain threshold is not subject to Social Security tax.