Social Security Tax Rates: Exploring the Facts
What are the key differences between the employer and employee Social Security (SS) tax rates?
a) The employer SS tax rate is the same as the employee SS tax rate.
b) The employer SS tax rate is higher than the employee SS tax rate.
c) The employer SS tax rate is lower than the employee SS tax rate.
d) The employer SS tax rate depends on the company's size.
Answer
The Social Security tax rate is the same for both the employer and employee at 6.2% each, totalling up to 12.4%. Independent contractors, however, are responsible for paying the full 12.4% from their income.
When it comes to Social Security (SS) tax rates, it's important to understand the similarities and differences between what employers and employees contribute. Both the employer and the employee are responsible for paying the payroll tax equally. An employee has 6.2% deducted from their paycheck for Social Security, and 1.45% for Medicare, summing up to the 7.65% employee SS tax rate. Employers pay the matching 7.65% on behalf of the employee, bringing it up to a total of 15.3%.
However, economists often note that the employer's portion may indirectly affect employees through lower wages. Additionally, the case is different for an independent contractor or those in the gig economy. If they receive the 1099 tax statement, they are responsible for paying both halves of the payroll tax, making up to 15.3% of their income.
Furthermore, the federal income tax and the payroll taxes for SS and Medicare function differently, with the latter having fixed rates whereas the former's rates increase as income rises, up to a certain level.