Social Security payroll taxes fund retirement, disability, and survivor benefits, and they come out of every paycheck. Employees pay 6.2% of their wages, employers match with another 6.2%, and the combined 12.4% applies to earnings up to $184,500 in 2026.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Self-employed workers owe the full 12.4% themselves. The rules below cover the rate, the wage cap, who is exempt, how employers report and deposit, and the personal liability that follows when withheld taxes don’t reach the IRS.
The Rate and What It Applies To
The Federal Insurance Contributions Act splits Social Security funding evenly between workers and employers. Under 26 U.S.C. § 3101, every employee pays 6.2% of gross wages.2Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax Under 26 U.S.C. § 3111, the employer pays a matching 6.2% on those same wages.3Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax Together, 12.4% of every dollar earned goes into the Old-Age, Survivors, and Disability Insurance trust funds.
The tax applies to virtually all cash compensation: regular wages, overtime, bonuses, commissions, and tips. Employees never see the employer’s half on their pay stubs, but it factors into the cost of hiring them. On a paycheck, this shows up as the “OASDI” or “Social Security” line.
Not every dollar an employer spends on a worker counts as taxable wages. Employer-sponsored health insurance premiums paid through a Section 125 cafeteria plan are excluded from Social Security tax entirely, along with employer contributions to health savings accounts and other qualified benefits under a cafeteria plan.4Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans These exclusions reduce the taxable wage base, which lowers the tax for both sides but also lowers the earnings recorded for future benefit calculations.
The 2026 Wage Base Limit
Social Security tax only applies up to a certain income level each year. For 2026, that ceiling is $184,500. Every dollar earned above that amount is free of the 12.4% combined tax for the rest of the calendar year. The Social Security Administration adjusts the figure annually based on changes in the national average wage index, so it tends to rise over time.5Social Security Administration. Contribution and Benefit Base
Employers track year-to-date earnings for each employee and stop withholding once wages hit the cap. If someone changes jobs mid-year and both employers withhold Social Security tax independently, the worker may exceed the limit. The excess gets claimed back as a credit on the worker’s personal income tax return.
Medicare works differently. Its 1.45% applies to all wages with no ceiling, and an additional 0.9% kicks in on earnings above $200,000 for most filers.6Internal Revenue Service. Topic No. 560, Additional Medicare Tax The wage base cap in this article covers only the Social Security portion of FICA.
If You’re Self-Employed
Working for yourself means no employer exists to pay the matching half. Under 26 U.S.C. § 1401, self-employed individuals owe the full 12.4% Social Security tax on their net self-employment income.7Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax Combined with the 2.9% Medicare portion, the total self-employment tax rate is 15.3%.8Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) You only owe self-employment tax once net earnings reach $400 for the year, and the same $184,500 wage base limit applies to the Social Security portion.
Federal law lets you deduct the employer-equivalent half of your self-employment tax when calculating adjusted gross income.9Office of the Law Revision Counsel. 26 USC 164 – Taxes – Section: Deduction for One-Half of Self-Employment Taxes The deduction lowers income tax; it does not reduce the self-employment tax itself. You calculate and report the tax on Schedule SE, filed with your annual return, and payments typically go through quarterly estimated tax installments. Miss a quarterly deadline and underpayment penalties kick in, so this is one area where self-employed workers need to stay ahead of the calendar.
Who Is Exempt
Most workers have no choice about paying in. A few groups qualify for exemptions.
Members of Recognized Religious Groups
Members of qualifying religious groups that have existed continuously since December 31, 1950, and that are conscientiously opposed to accepting insurance benefits can apply for an exemption using IRS Form 4029.10Internal Revenue Service. Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits Approval requires both the individual and an authorized representative of the religious group to certify the application. The trade-off is permanent: the applicant waives all Social Security and Medicare benefits for themselves and any dependents who might otherwise qualify based on those earnings. The exemption works for self-employment income, and for wages only when the employer holds the same exemption.
Nonresident Alien Students and Researchers
Foreign students temporarily in the U.S. on F-1, J-1, or M-1 visas are generally exempt from Social Security and Medicare taxes for up to five calendar years, provided they remain nonresident aliens and the work is authorized by their visa status.11Internal Revenue Service. Foreign Student Liability for Social Security and Medicare Taxes Once they become resident aliens for tax purposes, usually after the five-year period, the exemption ends and normal FICA withholding applies.
Children Working for a Parent
Children under 18 employed in a parent’s sole proprietorship, or in a partnership where every partner is a parent of the child, are exempt from Social Security and Medicare taxes.12Internal Revenue Service. Family Employees For domestic work in a parent’s private home, the exemption extends to age 21. If the business is structured as a corporation, the exemption does not apply regardless of the child’s age.
Students Working at Their School
Students enrolled at least half-time and working for the same school, college, or university where they’re pursuing a degree can qualify for a FICA exemption. The educational relationship with the school must be primary, not the employment. Medical residents, postdoctoral researchers, and career employees receiving full benefits don’t qualify, even if they’re technically enrolled.
Employer Reporting and Deposits
Employers report Social Security and Medicare taxes to the IRS quarterly using Form 941.13Internal Revenue Service. Instructions for Form 941 Very small employers whose total annual tax liability is $1,000 or less may qualify to file once a year using Form 944 instead.14Internal Revenue Service. Employers: Should You File Form 944 or 941?
Reporting and paying run on separate schedules. Most employers deposit taxes through the Electronic Federal Tax Payment System.15Internal Revenue Service. EFTPS: The Electronic Federal Tax Payment System Deposit frequency depends on the size of the tax liability during a lookback period. Employers who reported $50,000 or less deposit monthly, by the 15th of the following month. Employers who reported more than $50,000 shift to a semi-weekly schedule tied to their paydays.16Internal Revenue Service. Topic No. 757, Forms 941 and 944 – Deposit Requirements Getting deposit dates wrong is one of the most common payroll mistakes, and the penalties escalate quickly.
Penalties for Late Deposits
The IRS does not ease into payroll tax penalties. The failure-to-deposit penalty under 26 U.S.C. § 6656 escalates based on how late the payment is:17Office of the Law Revision Counsel. 26 US Code 6656 – Failure to Make Deposit of Taxes
- 1 to 5 days late: 2% of the unpaid deposit
- 6 to 15 days late: 5% of the unpaid deposit
- More than 15 days late: 10% of the unpaid deposit
- More than 10 days after the first IRS notice: 15% of the unpaid deposit
The tiers do not stack. A deposit 20 days late owes 10%, not 2% plus 5% plus 10%.18Internal Revenue Service. Failure to Deposit Penalty Ignoring an IRS notice moves the penalty to the 15% tier fast. The penalty applies to the amount not deposited on time, so larger payrolls mean proportionally larger consequences for the same mistake.
Personal Liability When Withheld Taxes Don’t Get Paid
This is where payroll taxes become genuinely dangerous for business owners. When an employer withholds Social Security tax from employee paychecks but fails to send the money to the IRS, the withheld funds are considered held “in trust” for the government. Under 26 U.S.C. § 6672, the IRS can pursue a Trust Fund Recovery Penalty against any individual personally responsible for those funds who willfully failed to pay them over.19Office of the Law Revision Counsel. 26 USC 6672 – Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax
The penalty equals 100% of the unpaid trust fund taxes. In effect, the IRS collects the money twice: once from the business, if it can, and once from the responsible individual. “Responsible person” is not limited to owners. It can include officers, partners, bookkeepers, or anyone with authority over which bills get paid.20Internal Revenue Service. Trust Fund Recovery Penalty (TFRP) Overview and Authority “Willful” does not require intent to defraud. Knowingly using the withheld taxes to pay rent or suppliers instead of the IRS is enough. This is one of the few tax debts that cannot be discharged in bankruptcy, and the IRS pursues these cases aggressively. If a business is struggling financially, paying the trust fund portion of payroll taxes ahead of any other creditor is almost always the right move.
Records to Keep
The IRS requires employers to keep all employment tax records for at least four years after filing the fourth-quarter return for the year.21Internal Revenue Service. Employment Tax Recordkeeping Records for the 2026 tax year should be retained through at least 2031. Those records include payroll registers, copies of filed Forms 941, W-2s, deposit confirmations, and documentation showing how withholding was calculated for each pay period.
Employers should also verify employee names and Social Security numbers using the Social Security Number Verification Service before submitting W-2s.22Social Security Administration. The Social Security Number Verification Service When a number fails to verify, the SSA recommends checking for typos first, then asking the employee to confirm the information against their Social Security card. If the mismatch cannot be resolved, the employer should document every step taken and keep that documentation with payroll records for three years.23Social Security Administration. SSN Verification Service Handbook – What to Do if an SSN Fails to Verify A failed verification is not, by itself, grounds for firing or taking adverse action against an employee, and it says nothing about immigration status.