Calculating Social Security Taxes: The Breakdown Explained
The Social Security tax, commonly known as the Old-Age, Survivors, and Disability Insurance (OASDI) tax, is a percentage of workers' income that is withheld from their paychecks. Employers match this contribution, while self-employed individuals pay both the employer and employee shares.
In 2025, the tax rate for employees and employers is 6.2% of an employee's compensation, amounting to a combined rate of 12.4%. Self-employed individuals are responsible for the full 12.4% of their net earnings.
There is a limit, or tax cap, on the amount of earned income that is subject to taxation. This cap, $176,100 in 2025, determines the maximum annual employee contribution at $10,918.21.
FICA taxes, a combination of Social Security and Medicare taxes, are withheld from employees' paychecks. On a pay stub, OASDI refers to the Social Security tax, while Fed Med/EE refers to the Medicare tax. social security is a federal program that provides benefits to retirees and disabled individuals. It is funded through worker contributions for at least ten years, based on their earnings history. Social Security benefits are limited to a maximum monthly benefit amount based on an individual's earnings history.
Wages subject to Social Security tax include salaries, bonuses, commissions, and paid vacation or sick time. Elective contributions to a qualified retirement plan are also subject to FICA tax. Employer-paid accident or health insurance premiums, as well as Health Savings Account (HSA) contributions, are not included in the FICA tax.
It is possible for an individual to overpay the Social Security tax if they have earnings from multiple employers and the combined total exceeds the cap. Any overpayment amount is applied to the individual's federal tax bill or refunded, while each employer must still match the tax contribution.
Self-employed individuals are subject to both the employee and employer shares of Social Security tax, making them responsible for the full 12.4%.
The Social Security program, established in 1935, has undergone changes in tax rates and the tax cap throughout its history. The tax rate has risen over time, from 1% to 6.2%, while the wage limit has increased to keep up with average wage increases and address differences between low-wage and high-wage earners.
Since its inception, the tax cap has been in place, capping the maximum annual Social Security taxable income. This cap, revised annually by Congress, was set at $3,000 in 1937 and has since increased. In 2025, the cap is $176,100. Beneficiaries may owe taxes on their Social Security benefits if their combined income exceeds certain thresholds. Most Americans pay federal income taxes on part of their Social Security benefits because their total income is higher than the threshold for taxation of their benefits.
If an individual expects to owe taxes on their Social Security benefits, they can either make quarterly estimated tax payments to the IRS or have federal taxes withheld from their benefits. Those who file their federal income taxes as a single person and have a combined income below $25,000 will pay no taxes on their Social Security benefits. The taxable amount is based on the individual's total adjusted gross income plus half of their Social Security benefits.
In the realm of personal-finance and business, self-employed individuals are liable for the full ico of 12.4% from their net earnings, unlike employees who only contribute half and have their employers match the rest. On the other hand, those who exceed the tax cap of $176,100 in earned income in 2025 may have tokens of their overpayment applied to their federal tax bill or refunded.
