Social Security Tax Act was signed into law in 1935. It began as a simple retirement program. Over time, the government added survivors’ benefits in 1939 and then disability benefits in 1956. It was a program developed as a means to offer income for the aging population upon retirement and to ensure that disabled members of society would not fall into poverty after becoming disabled and unable to work.
Social Security tax is governed by the Internal Revenue Service (IRS). It is part of the Federal Insurance Contribution Act (FICA) tax. The current Social Security tax rate is 12.4%. The employee and the employer split the cost of the tax, paying 6.2% each. This is a payroll tax that is collected each time an employee is paid by their employer.
There are compensation limits enforced with the Social Security Tax. In 2018, the wage limit was $128,400. This tax supports and funds the programs administered by the Social Security Administration (SSA). SSA manages and pays retirement, disability, and survivorship benefits. These benefits are also referred to as Old Age, Survivors, and Disability Insurance (OASDI).
There are a few exemptions to the Social Security tax for certain individuals including: