If you have ever worked in the United States then more than likely you've paid social security taxes at some time or another. It's a small percentage of earnings taken from each paycheck you receive for the work or services you provide. The percentage taken is determined by law and can change from one year to the next. In most cases, the amount deducted is divided and you as the employee will pay half and your employer will pay the other half. However, if you're self-employed you'll be expected to pay the full amount. There are quite a few factors that go into determining exactly how much should be deducted from each pay period, which can be rather complicated to figure out without the use of a Social Security Tax Calculator.
The purpose of paying social security taxes is to have enough money for each person to have a small income to live off of when they retire or they find themselves unable to work due to a disability of some type. These funds are made available for anyone who has worked for more than ten years and paid into the system. As an employer, it is important to know how to calculate the social security taxes that you are required to withhold from your employees for each pay period. This knowledge is also essential for those that are self-employed.
How Much to Withhold
Aside from paying a specific percentage determined by the Social Security Administration, the amount deducted will also be affected by the individuals withholding allowances claimed on his or her W-4 form. To figure this out using a Social Security Tax Calculator you can first calculate the employee's gross wage. If the person works on an hourly basis, you need to multiply the number of hours the employee worked during the specific pay period by the hourly wage. If the employee works on a salary basis but has worked no overtime then the gross wage will be the same no matter what pay period you're figuring on. However, if overtime is involved this amount must be added to the gross wage earnings before calculating the social security taxes.
Once you have the total gross earnings, you can deduct any pre-tax deductions like employee contributions made to health insurance or 401(k) plans. You will also have to factor in any employee matching contributions to get the amount of the employee's earnings subject to social security taxes.
The total gross wage is then multiplied by 6.2% to determine the employee portion of taxes to be paid. Then factor in the number of withholding allowances and the number of exemptions to determine the exact amount to be deducted from the employee's pay.
In many cases, this can become quite complicated and time consuming especially if you have a lot of employees in your payroll. Many have found it much simpler to use a Social Security Tax Calculator to make sure that there is no room for error and that everything is done accurately and quickly. By using the calculator you can be sure that all of your calculations are precise and that the taxes are all paid exactly as they should be.