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How social security tax is calculated
The Social Security payroll tax rate is 12.4%, and workers pay 6.2% through payroll deductions. Employers pay the remaining 6.2%.
In 2025, workers will pay 6.2% on earnings up to $176,100. Up to $10,918.20According to the Social Security Administration. Once an employee reaches that limit, they will no longer be paid into the program for the remainder of the year.
The 2025 adjustment will have a bigger impact on the self-employed, said Lovison, who is also a certified public accountant. Because “they are paying from both sides,” meaning they are obligated to pay the full 12.4%.
The government also collects a 2.9% Medicare payroll tax, with workers and employers each paying 1.45%. However, there is no cap on Medicare taxable income.
Self-employed individuals are also responsible for both sides of the Medicare tax, with Social Security and Medicare totaling 15.3%. However, even if you don't itemize, you can still deduct 50% of your self-employment taxes on your personal return.
Concerns about Social Security solvency
The latest social security adjustments are Program solvency. The trust fund used to pay benefits is expected to be depleted in 2035, according to the trustees' May report.
Meanwhile, some advocates argue that: increase the social security wage base To provide more funding.
The Social Security Administration's 2024 Director's Report details more than 150 options. fill the funding gapincluding ways to reduce benefits and increase income.
“Clearly, the greatest economic benefit would come from eliminating the tax cap,” said Alicia Munnell, director of the Center for Retirement Research at Boston University. I wrote about the report In August.
But future changes are unclear because of opaque control over Congress and the White House.
