In America, Social Security is known as the Old-Age, Survivors, and Disability Insurance (OASDI) program. It is a social insurance program enabled through specific payroll taxes referred to as Federal Insurance Contributions Act (FICA). By law, employers and employees are required to pay taxes to the government. Included in this tax payment is social security withholding.
In basic language, social security provides benefits for retirement, disability, and death. These are the most commonly provided benefits of private sector pension plans. They are also funded by taxes due from the employee and the employer. The employer and the employee are both responsible for their own portion of social security withholding.
An employee’s social security tax is withheld from her paycheck each pay date. The employer is responsible for paying his entire amount of social security taxes due. For each year the employee’s FICA contribution is assessed, she receives credit from the Social Security Administration for those wages for that year.
In addition to social security withholding, FICA has imposed Medicare taxes on the employer and the employee. Consequently, FICA is comprised of Medicare and Social Security. The Medicare program exists primarily to provide retirees with health benefits.
To fund the Medicare program, the employer and the employee must pay separate payroll taxes. Although the employee’s share of taxes is deducted from his paycheck, the employer is responsible for ensuring this deduction occurs timely and accurately. Therefore, in actuality, the employer pays his and the employees’ share of FICA taxes.
There are a few categories of workers who are exempt from paying Social Security taxes. State or local government workers who are participating in an alternative retirement system implemented by their employer are exempt. So are college students employed under federal work-study programs, postdoctoral researchers, and teaching assistants or research assistants. Individuals in these assistant positions must also be graduate students receiving a stipend while performing these job duties or while on fellowships. Ministers or individuals providing a similar religious service, providing they possess an objection that is morally and religiously inclined toward their disbelief in public insurance, may also be exempt.
An employee’s federal income tax deductions are based on his filing status and the amount of allowances he claims. This flexibility sometimes allows him to control the amount of taxes withheld from his paycheck. Social security withholding cannot be adjusted because the government has imposed a fixed amount; the employer must pay these taxes or be subjected to hefty penalties.