Social Security Tax | Meaning and Definition

What is Social Security Tax?

Social security tax is one of the two FICA-mandated US taxes. It is a tax which contributes to the well-being of millions of Americans. It aids them through retirement, and disabilities, among other reasons. The tax funds the social security plan, which helps individuals who have served the country or are less fortunate. It also helps compensate for retirement and makes it easier for individuals to retire. Social Security Tax is paid by employees and employers, and funds a social security plan, as mentioned before. The tax is 6.2% of employee pay and applies to both employees and employers, which makes it 12.4%. Social security tax. 


What is Social Security Program?

The social security program is a support towards individuals who have lost earnings. These individuals can be retirees, and people with disabilities, and this applies towards deceased individuals as well. It is an American program that is operated through Disability Insurance, and the Old-Age and Survivors Insurance. Combined, the social security program works through the OASDI fund, which is a combination of both the funds mentioned before. Both funds work in harmony. In the US, social security assistance is possibly upwards of $1500 (the numbers vary depending on various conditions).

Eligibility Requirements for Social Security Tax

To be eligible for applications towards the social security program in the US, there are multiple criteria. Some of these criteria are a must, while some could change depending on certain factors. These factors could relate to age, disability status, and others. The criteria for eligibility requirements are listed below:
1. Age requirement- For applications towards the social security program and the social security fund, there is an age requirement of 62 years. This is one criterion which has no exception and has to be followed for application. 
2. Work credits- For application for the Social Security program, an individual needs 40 work credits. An individual gains a work credit for earning a certain sum of money. In 2023, this sum is around $1500. A worker can earn a maximum of 4 work credits per year. In addition to this, during the 10 years before retirement, the individual needs to have collected 20 work credits. If 40 work credits are not reached, then social security assistance can not be provided. There is an exception to this though. In the case of disability, the eligibility and number of work credits needed to apply are unique. Depending on the age at which the applicant was diagnosed with the disability, the work credits differ. A younger onset may grant fewer work credits needed for the application process. 
3. Work credits (2)- For the second part of the work credits, note that the applicant does not need to have the required credits. It is important to know the second way of applying through work credits. If an individual does not have credits of their own, or a required number, it can be ignored. This can only be ignored if someone related to them by blood has the necessary credits required. If a family member has 40 credits, they can spare them to arrange benefits for another member. A spouse, parent, or dependent parent can get benefits for individuals in their family. 

Summing up

Social Security tax is a result of the social security program. It is a tax mandated by the FICA (Federal Insurance Contributions Act), alongside Medicare tax (known as hospital insurance tax) Social Security tax contributes to the funding and well-being of Americans. The tax is the deducted from an individual’s payout that contribute to this fund. In the US, the current rates for this tax are 6.2% for employees, and the same for employers. The combined total leads to 12.4%, which is the company total for the tax. In addition, unlike income tax. The taxable limit for social security tax, is $160,000, as of 2023, and will be $168,000 in 2024. In addition, the Social Security tax is regressive and not a progressive one. Regressive taxes are applied regardless of income. This means that every employee receives the % of the tax they are supposed to, regardless of their income. Progressive taxes increase the tax % depending on the income of an individual, taxing higher incomes more. A regressive tax means that individuals earning less will have to pay a larger proportion of tax.

FAQs (Frequently Asked Questions)

Social Security Tax is a FICA-Mandated Tax which contributes to the American Social Security Fund & Program.

In order to apply for social security program one needs to be over 62 years of age, and have 40 work credits, or a family member who is willing to get benefits for you.

It is 6.2% for employees, and 6.4% for employers, combining to make a total of 12.4%.

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