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What is the 2012 Social Security Tax Rate?

In addition to the federal income tax, all taxpayers who earn wages also pay the social security tax. The social security tax, which makes up the majority of the FICA payroll tax automatically deducted from your paycheck every month, is a mandatory contribution to the Social Security Fund that provides monthly checks for retired taxpayers.

1. How much of my income do I pay in Social Security taxes?

The 2012 Social Security tax rate for employees is 4.2%. Your employer pays an additional 6.2% into Social Security on your behalf, which means the total paid into Social Security for you is 10.4% of the amount you earn each month.

The employee’s half of the Social Security tax also used to be 6.2%, until late 2010 when President Barack Obama authorized a recovery act providing employees a 2% SSI tax cut. The current reduced tax rate has been in effect since 2011, and was extended by Congress until the end of 2012. The Social Security tax cut is a temporary measure, and the tax will presumable return to 6.2% in 2013 without a further extension.

Unlike the Federal Income Tax, which directly funds government agencies and programs, payroll taxes including Social Security are paid into special funds reserved only for the program they fund. The Social Security tax goes directly into the Social Security Fund, which provides benefits to retired and disabled Americans. Your payments into the Social Security Fund are recorded by the Social Security Administration, and will qualify you to receiving Social Security payments when you retire.

2. How much Social Security tax do I have to pay to collect retirement benefits?

Every year you work and pay into social security, you can earn up to four Social Security credits based on your income. For every $1,130 you earn in 2012, you will earn one Social Security credit. Once you have accumulated 40 credits, or ten years worth of work, you become eligible to collect Social Security benefits upon your retirement.

While earning Social Security credits qualify you to collect benefits when you retire, the amount of money you will receive every month depends on how much Social Security tax you’ve paid in. Your monthly benefit amount is based on the wages you earned in the ten highest-earning years over the course of your career, as well as the age at which you decide to start collecting Social Security.

3. Important Facts About FICA Payroll Taxes

• In addition to the Social Security tax, a 1.45% Medicare tax is deducted from your paycheck every month
• The total payroll taxes you pay every month, including both Social Security and Medicare, is 7.65%
• If you are self-employed, you must pay both the employer and employee’s halves of the FICA payroll tax. The total self-employment FICA tax is 13.3% in 2012

If you have any questions about your Social Security taxes or collecting benefits, you can call the Social Security Administration toll-free at 1-800-772-1213. Representatives are available 7AM through 7PM, Monday through Friday.

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