Social Security tax is a tax applied to income generated from labor. The tax is also known as the Old-Age, Survivors and Disability Insurance, or OASDI.
Anyone who earns wages is subjected to Social Security tax. As of 2014, the rate is 12.4 percent, with half the rate paid by the employer and the other half deducted from the employee's wages. Self-employed workers pay 12.4 percent since they are responsible for both the employer and employee deductions.
Starting in 2015, the wage cap for the tax is $118,500. This means that earnings up to that amount are taxed at 6.2 percent for both the employer and employee. Income over $118,500 is not subjected to the Social Security tax. Social Security taxes are collected and deposited into a special trust fund used to pay Social Security benefits to retirees, widows and those collecting disability benefits. Unlike federal taxes that go into a general fund and can be used as needed, Social Security funds can only be used to pay social security benefits.
For tax years 2011 and 2012, the tax rate was reduced to 4.2 percent for both employers and employees. The reduction was part of the American Taxpayer Relief Act. The tax rate returned to 6.2 percent for employers and employees in 2013.