Social Security payments for US employees: what businesses need to know

Social Security is a financial safety net that US-based employees can fall back on when they retire or are unable to work. Nearly 200 million people work in roles covered by Social Security, and pay the taxes associated with the program.

Therefore, it’s important for employers to understand how Social Security works. If you make mistakes or don’t make the proper Social Security contributions, you can receive noncompliance penalties from the Internal Revenue Service (IRS), resulting in fines or even potential investigations.

In this article, we’ll explain how to calculate Social Security payments for US employees, and discuss what your business needs to be aware of. So let’s jump right in.

How to calculate Social Security

To calculate Social Security, the first step is to work out the correct percentage of your employee’s total taxable wages. 

The Social Security rate is currently 12.4%, with you (the employer) and your employee each contributing 6.2%.

How much is Social Security?

The amount of Social Security contributions you must make depends on your employee’s annual income.

For example, if your employee earns $50,000 per year, the Social Security bill would be $6,200 ($50,000 x 12.4%). You and your employee would be responsible for paying $3,100 each.

To see a full breakdown of employment costs and contributions for all your potential hires (including Social Security), check out our free Employee Cost Calculator tool.

Is Social Security mandatory?

In almost all cases, US employees (and, by definition, employers) are required to make Social Security contributions. This refers to anybody that works in the US, regardless of their nationality.

Note that employees must still make Social Security contributions even if they won’t be eligible to receive them.

Who is exempt from paying Social Security?

As mentioned, almost all US-based workers must pay Social Security. However, there are some small exceptions, including:

• Members of certain religious groups who formally oppose Social Security

• Some non-resident aliens (depending on their visa type)

• Students working for the same school they’re enrolled at

• Employees of foreign governments

What is the Social Security limit for paychecks?

Employees are only liable for Social Security contributions on the first $168,600 of their annual salary.

This means that, using the current rates, the maximum amount you can deduct from an employee’s paycheck for Social Security is $10,453.20.

Does federal withholding include Social Security and Medicare?

Federal withholding includes Social Security and Medicare taxes, both of which you are required to deduct from your employees’ paychecks.

The Medicare rate is currently 2.9%, again split evenly between employer and employee at 1.45% each. There is no cap on Medicare contributions, but if your employee makes more than $200,000 per year, they’ll be subject to an additional 0.9%.

What about independent contractors?

Independent contractors are responsible for their own taxes and contributions, and must pay the full 12.4%.

This is one of the reasons why it’s so important to classify your team members correctly. If you hire someone as an independent contractor but treat them like an employee, you run the risk of misclassification. This can result in fines, penalties, and legal action, and cause major problems for your business.

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How do you pay Social Security?

You will need to withhold your employee’s 6.2% contribution from their paycheck, and pay your 6.2% contribution. Both must be deposited to the IRS, although the deposit requirements can vary depending on your business and the amount being withheld. 

While you can pay Social Security through the mail, the IRS recommends using electronic payment options. There are several methods available to make the payments.

What are the eligibility requirements to receive Social Security?

Around 66 million people in the US currently receive Social Security benefits, with the criteria relatively straightforward. Recipients must either be at least 62 years old, classed as disabled, or both.

According to the IRS, a worker is considered disabled if:

• They can’t do the work they previously did

• Their condition means they can’t adjust to alternative forms of work

• Their condition has lasted (or is expected to last) at least a year, or might result in their death

They’ll also need to have accumulated enough work credits through years worked and taxes paid.

The full eligibility requirements for Social Security payments are laid out in the IRS’s Instructions for Schedule R.

Simplifying your Social Security obligations

With the right payroll software, it’s quick and easy to calculate and manage your Social Security obligations. This is especially true if you have a distributed team, with employees both in and out of the US.

Remote can help you simplify your Social Security management in the following ways:

Payroll management

Remote Payroll provides you with everything you need to automate and run payroll, wherever your team members are based. You can track your team’s hours and manage all their payroll requirements — including bonuses, incentives, benefits, reimbursements, and deductions — all from one hub.

This allows you to quickly and accurately run payroll, and ensures that you are fully compliant with all local tax and employment laws in the US and beyond.

Employee self-service

Remote’s employee self-service portal also helps simplify the payroll process. It allows your team members to do more for themselves, freeing up your administrative time.

Your employees can update and verify their details as well as track time and expenses for reimbursement, minimizing the risk of errors. They can also access Social Security tax withholding forms and other relevant documents whenever they want, instead of having to go through administrators.

Manage Social Security contributions with Remote

Remote helps ensure that you’re paying the right Social Security amounts for all your US employees, while complying with all relevant payroll tax and employment laws. This gives you peace of mind and allows you and your finance team to focus on other key areas, such as growing your business.

To learn more about how Remote can simplify your payroll needs — in the US and beyond — speak to one of our friendly payroll experts today.

Alternatively, if you’re looking to start hiring in the US, check out our tailor-made US expansion package — designed for businesses of all sizes.

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