Social Security Tax Guide 2025: U.S. Employer & Employee Responsibilities

Social Security is an integral part of the overall safety net, offering financial security and stability for millions of Americans by managing risks against unemployment or medical emergencies, ensuring a secure retirement. 

I. Introduction: Why Understanding Social Security Tax Matters

Since Social Security tax is a mandatory federal requirement for both employers and employees, each party has its own set of obligations. Failing to comply would result in penalties. It’s important for both employers and employees in the U.S. to understand how this payroll tax works, so you can keep your company in good standing and your employees confident in their future. 

In this article, we’ll walk you through:

• How Social Security contributions work in the US.
• The amount of contributions for employees and employers.
• The most commonly asked questions. 

II. Understanding Social Security Tax: What Employers and Employees Contribute

Under the Federal Insurance Contributions Act (FICA), Social Security tax funds the Old-Age, Survivors, and Disability Insurance (OASDI) program. This program provides retirement benefits, disability support, and survivor payments. Both employers and employees each contribute 6.2% of the employee's wages, totaling 12.4%, up to an annual wage base limit.

These contributions ensure that employees receive guaranteed, inflation-adjusted monthly benefits upon retirement or disability, safeguarding their financial well-being and providing critical family support.

Reference: Social Security tax withholding rate (IRS)

III. Responsibilities of Employers and Employees

Below is the latest Social Security tax rate for employers and employees in the U.S.:

Employees

6.2% Withholding: Employers withhold 6.2% of each employee’s gross wages, clearly shown on each payslip and summarized annually on Form W-2 (Boxes 3 & 4).

Reference: 2025 W-2 form for employees

Employees typically need no further action unless seeking refunds for excess withholding, which requires careful review of their W-2 for Social Security contributions.

Employers

• Matching Contribution: Match the employee's contribution (6.2%) against Social Security wage. Employers would have to report quarterly via Form 941 and annually via Form W-2 submitted to the SSA.
  
  
• Quarterly & Annual Reporting:
  • Form 941 (Quarterly): Employers by law need to report total wages and Social Security taxes withheld and matched.
    
    
  • Form W-2 (Year-End): Employers also need to issue the W-2 form to each employee and submit copies to the SSA for recording keeping purposes. 

Self-Employed Individuals

Full Liability: Responsible for both “employee” (6.2%) and “employer” (6.2%) shares, with a total amount of 12.4% based on Social Security wage. Here’s an example below:

Mark is a self-employed digital marketing consultant who earns $90,000 in net income in 2025. Because he's both the “employee” and the “employer,” he must pay the full 12.4% Social Security tax on his earnings, up to the wage base limit. In this scenario, Mark needs to pay $11,160 ($90,000 x 12.4%) in total for his Social Security tax.

Federal Unemployment Tax (FUTA)

In addition to Social Security tax, U.S. employers must also pay Federal Unemployment Tax (FUTA) to support unemployment benefits. For most employers, the effective FUTA tax rate is 6.0% and applies to the first $7,000 paid to each employee during the year. FUTA is reported annually on IRS Form 940.

Note: Payroll tax rules can differ by state. Aside from federal requirements, employers need to check their state’s unemployment and payroll tax rules. 

Managing a Global Workforce as An Employer

Having a clear understanding of employment guides for different roles, in different countries and regions, keeps your business compliant and ensures every employee’s benefits are properly funded.

IV. 2025 Social Security Wage Base Limit Explained

Every year, the IRS sets a cap on the amount of an employee’s earnings subject to Social Security tax, which is known as the “wage base limit.” In 2025, the wage base limit for Social Security tax is set at $176,000 USD. Income that’s above the $176,000 threshold is not subject to the tax. 

Reference: historic contributions and benefits (SSA)

Wage Base Growth from 1998 to 2025: What the Trend Tells Us

• Wage base has surged: From $68,400 in 1998 to $176,100 in 2025, reflecting long-term national income growth.
  
  
• Employee contributions nearly doubled: Maximum annual payments rose from $4,240 to over $10,900.
  
  
• Total employer-employee cost has climbed: Combined contributions now exceed $22,000 per high-income employee (above the yearly wage base limit).

These figures highlight how Social Security tax has become a significant part of payroll expenses. For employers, it impacts cost forecasting and compliance planning. For employees, it shapes their understanding of retirement benefits and paycheck deductions. 

Example Calculation at a Glance:

Understanding the wage base limit helps payroll teams avoid over-withholding and gives employees clarity on their maximum Social Security contributions for the year.

V. Social Security Tax vs. Medicare Tax: Key Differences Employers Must Know

While both Social Security and Medicare taxes fall under FICA (Federal Insurance Contributions Act), they differ in rate structure, wage caps, and surtax rules. 

While Social Security tax is set at 12.4% total for employee & employer combined, Medicare tax by contrast, is levied at 1.45% on all earned wages. Medicare contribution is also matched by employers, but with no earnings limit.

High-income earners pay an additional 0.9% surtax on wages over $200,000 for single filers (or $250,000 for joint filers). All Medicare withholdings support the Medicare trust fund, which covers hospital and medical insurance. Below is the threshold amount for each type of filer:

• Married filing jointly: $250,000
• Married filing separately: $125,000
• Single: $200,000
• Head of household (with qualifying person): $200,000
• Qualifying widow(er) with qualifying child: $200,000
  
  

This clear comparison helps employers apply the correct rates and cap to ensure compliance with IRS rules and gives employees full visibility into how their FICA deductions translate into long-term benefits.

Correctly distinguishing these taxes ensures accurate tax withholding for Social Security and Medicare compliance, protecting employers from penalties.

Why are Social Security & Medicare Important? 

Although both Social Security and Medicare taxes fall under FICA, they serve distinct purposes: Social Security guarantees ongoing income replacement for retirees, disabled workers, and their dependents. 

Medicare finances hospital and medical insurance for seniors and certain disabled individuals, focusing on covering the ever-rising healthcare costs going into the future. These two welfare programs form complementary pillars of America’s social safety net, with one securing income, and the other ensuring access to care.

VI. Common Social Security Tax Questions: W-2 Reporting, Self-Employment, and Exemptions

1. Who is Exempt from Social Security Tax? 

While most U.S. workers must pay Social Security tax, a few groups qualify for exemption:

• Members of recognized religious groups who have formally opted out of Social Security. 
• Individuals in the U.S. (non-resident aliens) on specific temporary visas (e.g., F-1, J-1, or M-1) may be exempt for a limited period. 
• Foreign government employees. 
• Students who are employees of the institution at which they are enrolled. 

Employers should verify exemption status and maintain proper documentation to support any non-withholding.

2. What Happens When There are Multiple Employers?

When an employee has more than one job during the taxable year, each employer must withhold Social Security tax on the employee’s wages up to the $176,100 cap. Each employer’s withholding is separate from other employers, which means the taxes withheld might exceed the wage base limit amount. The employee can claim a refund from the Internal Revenue Service (IRS) the following year. 

3. How Do Self-Employed Workers Ensure Correct Contributions?

According to the IRS, self-employed individuals must pay both the employer and employee portions of the previously mentioned 12.4% Social Security tax (6.2% each), plus the 2.9% (1.45% each) from Medicare. The same wage base limit of $176,100 applies to self-employed individuals.

If your question isn’t listed above, feel free to contact us for further details. 

VII. Compliance Today, Financial Security Tomorrow

For both employers and employees in the U.S., getting Social Security and Medicare withholding right isn’t just a check in the box and numbers on a payslip. The programs are the foundation that secures employees’ financial stability. Accurate withholding and reporting of both Social Security and Medicare taxes protect your company from IRS penalties.

Simplify Global Expansion with Slasify

Managing a global workforce is challenging. Employers often lose clarity amid daily operations, making tailored solutions like Slasify essential for sustainable business growth.

Employer of Record (EOR)

An Employer of Record (EOR) is a third-party organization that legally employs workers on behalf of another company. It manages employment responsibilities such as payroll, tax filings, and compliance with local labor laws—allowing businesses to hire talent in foreign markets without establishing a legal entity.

With Slasify as your EOR, you can tap into a global talent pool and onboard U.S. employees without the need to set up a local entity. Slasify handles all Social Security (6.2%) and Medicare (1.45%) withholdings, as well as the corresponding employer contributions, to ensure legal compliance and mitigate risk. Whether you're a U.S.-based company or a non-U.S. employer hiring American workers, Slasify offers a cost-effective, hassle-free solution for faster market entry and long-term talent retention.

Global Payroll

Slasify’s global payroll solutioncentralizes U.S. payroll in one intuitive dashboard for employers to automatically calculate Social Security and Medicare taxes, applying the $176,100 wage cap, and matching employer contributions. With built-in quarterly Form 941 and annual W-2 processing, you stay compliant across states, eliminate manual errors, and streamline payroll for teams of any size.