Social Security tax is part of the Federal Insurance Contributions Act (FICA) tax. It’s collected by employers when processing payroll. The tax rate is fixed at 6.2% for both employees and employers.
Calculating the Social Security tax is simple. It’s basically 6.2% of the employee’s income. The employer is responsible for matching the Social Security tax withheld from the employee’s income. The same applies to Medicare tax as well. With the combined rate of 12.4% Social Security tax is mandatory for employees and employers.
Due to the coronavirus pandemic, Social Security tax is waived in the fight against the financial impact of the crisis. The IRS issued guidance to employers. If your net earnings are less than $104,000 annually, your income won’t be subject to Social Security tax from September 1 to the start of 2021.
Withholding Social Security Tax When Processing Payroll
Employers must withhold Social Security tax from the employee’s income when processing payroll. The amount of Social Security tax withheld is shown on the employee’s paycheck. Employers are required to do one more thing regards to the tax withheld.
Employers must report Social Security tax withheld from the employee’s income on Form W2—Wage and Tax Statement. Not only the taxes withheld but the income subject to Social Security tax needs to be reported as well. This mostly equals the total income paid to the employee if he or she is a full-time worker who works about 40 hours a week.
Social Security wages and taxes withheld must be reported on Boxes 3 and 4 respectively. The employer then can furnish the employee with his or her W2. That’s of course assuming everything other than Social Security tax is also entered on W2.
Now that Social Security tax is suspended between September 1 and December 31, 2020, employees are going to see a noticable boost in their paychecks.