Employee Tax

• If you earn wages, you can expect to pay Social Security taxes on at least part of your income. As of January 2011, the normal rate for the Social Security tax is 6.2 percent of the employee's wages, but only the first $106,800 in earnings are subject to that tax. Any income you earn above that $106,800 threshold is not subject to the Social Security tax. It is important to note that for 2011 only, the employee portion of the Social Security tax has lowered by 2 percent to 4.2 percent of wages. That change is intended to stimulate the economy by placing more cash in the hands of the workers most likely to spend that money.
  
  

Employer Tax

• The Social Security tax is imposed on the employee and the employer. As an employee, you contribute 6.2 percent of your earnings to the Social Security system, or 4.2 percent for the 2011 tax year. Your employer also contributes 6.2 percent of your earnings to the system, for a total tax rate of 12.4 percent, or 10.4 percent for the tax year 2011. The temporary reduction in Social Security taxes applies only to the employee side, not to the employer's.
  
  

Self-Employment Tax

• If you are self-employed, the IRS considers you to be the employer and the employer. In practical terms, that means you are responsible for the employer and the employee sides of this tax. As of January 2011, that makes the total tax bite for Social Security a full 12.4 percent of your earnings, up to the current cap of $106,800. Self-employed individuals get a small break for 2011, since the employee side of the tax is only 4.2 percent, making the total Social Security tax 10.4 instead of the usual 12.4 percent.
  
  

Temporary Reduction

• The tax compromise bill passed by Congress and signed by President Obama at the end of 2010 includes a provision that temporarily lowers the Social Security tax employees pay by 2 percent. That means that for the 2011 tax year workers will pay only 4.2 percent instead of the usual 6.2 percent on their earnings, up to a cap of $106,800. This lower tax rate is only in effect for 2011, and if Congress does not vote to approve it the Social Security tax rate for employees will go back to 6.2 percent at the beginning of 2012. This temporary reduction applies only to the employee's side of the Social Security tax. The employer's portion remains at 6.2 percent.