An employee's portion of social security tax is 6.2% of his or her social security wages. Employers are taxed at the same rate, for a total contribution of 12.4%, up to a wage base limit. The wage limit is inflation indexed annually, and can be found in IRS Publication 15 for most employees, or Publication 51 for agricultural workers. For 2014, the maximum social security wage is $117,000. Social security taxes are required to be withheld under the Federal Insurance Contributions Act (FICA), and include old-age, survivor and disability insurance.
According to IRS Publication 15. wages subject to FICA include all income received for services performed, unless specifically excluded. The payment doesn't have to be by cash or check. Wages include salaries, bonuses, commissions and paid vacation or sick time. Payments in-kind, in the form of goods, lodging, food, clothing or services are included too, unless the employee
is a household or agricultural worker. Elective contributions to a qualified retirement plan are subject to FICA. Employer-paid accident or health insurance premiums for an employee, including the employee's spouse and dependents, are not wages and are not included in FICA. Health savings account contributions made by the employer are also not wages.
For example, Jeff earns $20,000 per year. He elects to contribute $4,000 to his 401(k) plan, and his employer matches 25% or $1,000. His social security wages are $20,000: his elective deferral is still subject to FICA, and the additional amount contributed by the employer is not. The social security tax withheld from his pay is $1,240.
Self-employed individuals don't get out of paying social security taxes, even if they don't run a payroll. They pay 12.4% of their net income, as calculated on their tax returns, under the Self Employed Contributions Act.