Does Federal Income Tax Include Social Security?

Does Federal Income Tax Include Social Security?
••• tax forms image by Chad McDermott from

New employees who have just entered the workforce are often pretty surprised when they see their paycheck for the first time. Perhaps they were expecting a nice, fat check for $1,000 but instead find their take-home pay is more in the neighborhood of $700. The information on their pay stub shows the various chunks of money withheld from their salary. These include payments for federal income taxes and Social Security, of course, along with a host of other items that may be deducted from your base pay.

Withholding and Deductions

Employers are generally responsible not only for paying their employees on a regular basis, but also for subtracting certain amounts from employee salaries to cover dedicated expenses. Some expenses are mandated by the federal government, or governments at a state or more local level, in order to cover income taxes. These are known as withholding amounts.

Deductions, on the other hand, are amounts other than income taxes that are subtracted from an employee's gross pay. As explained by the small business mentoring program, SCORE, deductions can include everything from health insurance and retirement plans to union dues.

Some regular paycheck deductions may be classified as contributions. This term often refers to payments that are shared between the employer and employee. For example, your employer may pay for part of your health insurance, and the employee pays for the remainder; the employee's payment may be labeled a "contribution."

Federal Income Tax

Uncle Sam takes a portion of an employee's earnings to cover payments for income tax. The amount withheld depends on a number of factors, including the base salary and the number of dependents the employee has filed for.

As detailed by the Tax Foundation, income tax rates for high earners can top 26 percent, while for low-income employees, it averages 3.7 percent. Overall, the average withholding for federal income tax amounts to 8.2 percent. An unmarried worker with a gross income of $45,000 a year pays, on average, $3,700 in federal income taxes.

Social Security Deductions

Social Security is a U.S. government-mandated retirement system for employees and their spouses, along with providing security in certain cases of disability. In fact, the formal name of the program is the Old Age and Survivors and Disability Insurance and may appear on a paystub as OASDI.

Social Security is funded through a payroll tax that is separate and independent from income tax. As of 2020, the Social Security tax is 6.2 percent of wages up to the first $137,700 of earnings.

Other Taxes and Deductions

In addition to Social Security and federal income tax, your payroll stub includes a number of other mandatory withholdings and deductions:

  • State income tax: States generally collect income tax as well, using the same withholding method as the federal government, but at different rates.
  • Local income tax: Some local governments, especially large cities, also collect income tax. New York City and Washington, D.C. are two examples.
  • Medicare: The government-sponsored Medicare health insurance program is also funded through a payroll tax.

Other items may also be deducted from your paycheck. Among the most common deductions, according to Turbotax, are:

  • Health insurance: Companies that offer health insurance to their employees typically pay for part of the insurance coverage, while the employees pay for the remainder through regular deductions from their paycheck.
  • Retirement programs: Similarly, companies may opt to chip in money to help employees build up a retirement fund, such as a 401(k), but employees may also steer some of their regular pay into their retirement account as well.

Although the overall impact of withholding and deductions can seem painful, keep in mind the many benefits your taxes, insurance and retirement benefits provide you now and in the future.