What is social security tax?

Social security tax is a federal payroll tax that employers and employees in the United States must pay to fund the social security program, which provides retirement, disability, and survivor benefits. Both the employee and the employer contribute a fixed percentage of the employee’s wages to the program.

For small business owners, understanding and properly managing social security tax is an essential part of staying compliant with payroll laws. With tools like Homebase, you can automate Social security tax calculations, ensure timely filings, and reduce the risk of tax errors or penalties—all while simplifying payroll and HR compliance.

What social security tax pays for

The funds collected through social security tax go directly to the social security Trust Fund, which supports:

• Retirement benefits – Monthly payments for workers who have reached retirement age
  
  
• Disability benefits – Financial assistance for people who can’t work due to qualifying disabilities
  
  
• Survivor benefits – Payments to spouses or dependents of deceased workers
  
  
• Dependent benefits – Aid for children of disabled or deceased workers
  

Employees “earn” social security credits through payroll contributions. Once they’ve accumulated enough credits, they become eligible for benefits later in life.

Employer responsibilities for social security tax

As an employer, you're legally required to:

• Withhold 6.2% from each employee’s taxable wages
  
  
• Contribute a matching 6.2% from your business
  
  
• Deposit both portions to the IRS on a regular schedule (monthly or semiweekly)
  
  
• Report total wages and taxes via Forms 941 (quarterly) and W-2 (annually)
  
  
• Keep accurate payroll records showing withheld and paid amounts
  

Failure to withhold or deposit social security taxes on time can result in significant IRS penalties, interest, and legal consequences. Even accidental mistakes can be costly.

How social security tax affects employees

Employees see the 6.2% social security tax withheld from their paycheck each pay period. This amount is reflected on their pay stub and is also reported on Form W-2 at the end of the year.

While it reduces take-home pay, social security tax is a long-term investment in financial protection. It ensures that workers will have access to retirement and safety-net benefits when needed.

If employees exceed the annual wage cap by working multiple jobs, they may overpay social security tax. In that case, they can claim a refund on their federal income tax return.

Social security tax vs. medicare tax

Although often mentioned together, social security and Medicare taxes are distinct parts of FICA:

• social security tax: 6.2% each from employee and employer (capped at the wage base limit)
  
  
• Medicare tax: 1.45% each, with no income cap (plus an extra 0.9% for high earners on the employee side)
  

Together, these make up the total FICA tax of 15.3%—split between employer and employee.

Best practices for social security tax compliance

To stay compliant and avoid costly errors:

• Use payroll software to automate tax calculations and filings
  
  
• Stay up to date on IRS wage base limits and FICA rates
  
  
• File accurate Forms 941 and W-2 on time every quarter and year-end
  
  
• Remit taxes electronically using the IRS’s EFTPS system or through a payroll provider
  
  
• Maintain tax records for at least four years, as required by the IRS
  
  
• Review employee classifications to ensure only W-2 employees are included (independent contractors do not pay FICA through you)
  

These tasks can be complex and time-consuming, but they’re critical to staying in good standing with the IRS and maintaining trust with your team.

How Homebase helps with social security tax compliance

Homebase Payroll makes it easy to stay on top of social security tax and all other payroll compliance requirements. You can:

• Automatically calculate social security tax with each payroll run
  
  
• Handle both employee withholdings and employer contributions
  
  
• File Forms 941, W-2, and W-3 without the paperwork hassle
  
  
• Remit payroll taxes on time and in full to the IRS
  
  
• Provide employees with digital pay stubs showing accurate tax breakdowns
  
  
• Keep organized, audit-ready payroll records in one secure place
  

Whether you’re hiring your first W-2 employee or scaling up your team, Homebase helps you simplify social security tax management and stay compliant every step of the way. Explore Homebase HR & Compliance to manage social security tax, payroll filings, and employee records—all in one platform.