Originally published July 2016. Last updated March 2026.
Social Security taxes don’t get as much attention as income taxes, but they take a significant bite out of your earnings. Here are four things you should understand.
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1. The Tax Rate Is 12.4% (Split Between You and Your Employer)
The total Social Security tax rate is 12.4% of your wages. If you’re an employee, you pay 6.2% and your employer pays 6.2%. Self-employed individuals pay the full 12.4% (deducting half as a business expense on their tax return).
On top of that, there’s a 2.9% Medicare tax (1.45% each for employee and employer), bringing the total payroll tax to 15.3%.
2. The Wage Base Keeps Rising
Social Security tax only applies to income up to a certain amount, called the wage base. This cap adjusts annually for inflation:
- 2023: $160,200
- 2024: $168,600
- 2025: $176,100
Income above the wage base is not subject to Social Security tax (though Medicare tax has no cap and applies to all earnings, with an additional 0.9% on wages above $200,000/$250,000).
If you earn $176,100 or more in 2025, your maximum Social Security tax contribution is $10,918 (employee share). Self-employed: $21,836.
3. Your Benefits May Be Taxable in Retirement
Depending on your total income in retirement, up to 85% of your Social Security benefits can be subject to federal income tax. The thresholds, which haven’t been adjusted for inflation since 1993:
Combined income = adjusted gross income + nontaxable interest + half of Social Security benefits
- Single filers: Up to 50% taxable if combined income is $25,000-$34,000; up to 85% taxable above $34,000
- Married filing jointly: Up to 50% taxable if combined income is $32,000-$44,000; up to 85% taxable above $44,000
Because these thresholds are frozen, more retirees cross them every year. As of 2025, roughly 56% of Social Security recipients pay some federal tax on their benefits.
4. There Are No Individual Social Security Accounts
Your Social Security taxes don’t go into a personal account with your name on it. They fund current retirees’ benefits. Your future benefits are based on your 35 highest-earning years and the age you start claiming, not on a personal balance.
The Social Security Trust Fund is projected to be depleted by 2035, according to the 2024 Trustees Report. After that, ongoing payroll taxes would cover approximately 83% of scheduled benefits. This doesn’t mean benefits disappear, but it does mean potential cuts without Congressional action.
Planning Strategies
- Manage your combined income in retirement to control how much of your Social Security is taxable. Roth withdrawals don’t count toward combined income.
- Time your Social Security claim based on your health, other income, and spousal benefits. Delaying from 62 to 70 increases your benefit by approximately 77%.
- Self-employed? Structure your business income to maximize your 35-year earnings record while being mindful of the self-employment tax rate.
FAQ
Does Kentucky tax Social Security benefits?
No. Kentucky does not tax Social Security benefits at the state level. Additionally, the first $31,110 of income from retirement accounts is exempt from Kentucky income tax.
Should I worry about Social Security running out?
The system won’t disappear. Even if the trust fund is depleted in 2035, payroll taxes would still fund about 83% of benefits. Some form of reform (higher taxes, later retirement age, benefit adjustments) is likely before that point. But relying on Social Security as your only retirement income source is risky regardless.
Schedule a free 20-minute consultation to build a retirement income plan that accounts for Social Security taxes and timing.
R.L. Brown Wealth Management
106 W Vine St, Suite 300, Lexington, KY 40507
859.317.5889
