Social Security Tax, formally known as the Old Age, Survivors, and Disability Insurance (OASDI) tax, is derived from a percentage of worker’s compensation. This sum is typically deducted from employees' salaries by employers. Self-employed personnel usually make predicted quarterly tax payments, which encompasses the self-employment tax.
In the 2026 tax year, the Social Security tax rate stands at 6.2% of staff compensation, equally borne by both employees and employers. Conversely, self-employed individuals pay the full 12.4%.
The combined deductions for the Social Security and Medicare programs are commonly referred to as Federal Insurance Contributions Act (FICA) taxes. In an employee’s pay record, OASDI represents the Social Security tax, while Fed Med/EE symbolizes the Medicare tax.
The Social Security system, primarily financed by payroll taxes paid by workers, employers, and self-employed individuals, offer benefits to retirees and those unable to work because of a disability. Workers who have paid into Social Security for at least a decade are generally entitled to retirement benefits based on their earnings history upon reaching retirement age. Eligibility for disability benefits also relies on earnings history, along with meeting age-based work-credit, recent-work rules and the set medical disability standard.
There exists an earnings cap on the amount of income subject to Social Security Tax; for 2026, the ceiling is $184,500. Therefore, an employee’s wages – including salaries, commissions, bonuses, and paid time off – and employer’s contributions of 6.2% each, and the self-employed’s full 12.4% under the applicable net-earnings and wage-base rules, cannot surpass $11,439.00 annually.
The Social Security tax is deducted from an employee’s income before any deferral contribution to a qualified retirement plan, making contributions such as a 401(k) plan elective and subject to FICA tax. However, employer-paid accident or health insurance premiums for an employee and their dependents are not considered as wages and are therefore exempt from FICA tax.
The maximum monthly benefit in Social Security retirement benefits, for those who have reached the retirement age of 66 in January 2026, stands at $3,752 and $5,181 at age 70. These benefits increase by 8% per year after full retirement age until 70 for people born in 1943 or later. The benefits saw a 2.8% increase in 2026, thanks to a cost-of-living adjustment (COLA) meant to counteract the implication of inflation and surging prices in the economy.
As the Social Security system navigates potential solvency issues, accrued from longevity and diminishing worker-to-retiree ratios, the Social Security tax, seen as a regressive tax, faces inevitable scrutiny, leading to concerns among economists, politicians, and individual taxpayers.