Words You Should Know: Social Security Payroll Tax


Does it feel like your paycheck just got a little smaller? That’s because it did, by 2%.

Thank the Social Security payroll tax.

The Social Security payroll tax is one of the lines on your pay statement, and it is what it sounds like—a 12.4% tax on wages that is used to fund Social Security. Employers pay half of that 12.4%, and workers pay the other half.

Two years ago, Congress passed a temporary tax break to give the economy a kick, reducing the employee tax to 4.2%. But that deal expired on Jan. 1.

A 2% change might not sound like a lot, but if you earn $50,000 it comes to $1,000 a year—about the size of the average American mortgage payment, says LendingTree. If you earn $100,000, the increase is enough to buy two months of groceries for a family of four, according to the USDA.

Who knew a snoozy-sounding term could pack such a big punch?