Social security tax

The social security tax is a federal tax that funds employee's social security benefits. It's based upon the employee's wages and not the needs of the recipient.

Together the Medicare and the social security tax were formed under the Federal Insurance Contribution Act and may be better known as the FICA tax.

For this tax, the employer deposits 6.2 percent and withholds a matching 6.2 percent of the employee's qualifying gross wages up to a predetermined wage cap. This cap periodically is adjusted for inflation.

Once the qualifying gross wages have exceeded the cap for an employee, the employer no longer withholds or deposits funds for the social security tax on that particular employee.

The tax is also deposited and reported along with the Medicare tax on federal Form 941, under the same reporting regulations.