Social Security Taxes: What You Need to Know

Social Security pays millions of Americans benefits that they rely on for making ends meet. But while many people understand the financial challenges that the program faces, they don't necessarily know how Social Security taxes work and how the program gets the revenue it needs to pay those benefits.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, takes a closer look at Social Security taxes, running through three essential aspects that everyone should know. Dan notes that payroll taxes provide the major source of income for Social Security, with employees paying 6.2% of their wages and employers matching that amount on their behalf. Self-employed workers have to pay both halves of the 12.4% total tax themselves. He then discusses the wage-base limit of $117,000 for 2014 and how it has nearly doubled in the past 20 years, and concludes with thoughts about how even deductions that reduce income-tax liability generally don't reduce the amount of Social Security taxes you have to pay.