UK Accounting Glossary
The social security tax is a tax the federal government levies to finance the Social Security fund. For businesses with employees, the social security tax is assessed as a payroll tax. The social security tax in this instance is sometimes called a FICA tax because its collection is authorized by the Federal Insurance Contributions Act. Employers and employees each pay a half share of the social security tax. For freelancers and independent contractors, the social security tax is assessed as a self-employment tax. The self-employed pay the full share of their social security tax. Funds collected by the social security tax provide the disability, retirement, survivorship, and death benefits received by tens of millions of American citizens. Collection of the security tax began in 1937 following the passage of the Social Security Act in 1935. Social security benefits were originally excluded from the social security tax, but today beneficiaries who have income from other sources do have to pay some tax on their benefits.
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This glossary post was last updated: 5th February 2020.