Social Security Tax

• Social Security taxes based on earned income are only 4.2 percent of income for the employee in 2011. The employer pays 6.2 percent in 2011, for a total of 10.4 percent. Congress gave the employee a break in 2011, but without further legislation, the tax rate will go back to the 6.2 rate for the employee that was in effect in 2010. The contributions base in 2011 is $106,800 for Social Security. Once you have paid Social Security taxes on that amount of income in 2011, you incur no more Social Security taxes through the end of the calendar year. Medicare tax continues with no restriction on the contributions base.
  
  

Medicare Taxes

• Another part of FICA tax is Medicare, covering hospitalization for retired individuals who have paid into the system. Payroll taxes for Medicare in 2011 are 1.45 percent for the employee and 1.45 percent for the employer, for a total of 2.9 percent. The Medicare trust fund is separate from the Social Security trust fund, and the Centers for Medicare and Medicaid administers this fund, not Social Security.
  
  

Self-Employed or Sole Proprietors

• If you are self-employed or a sole proprietor, Schedule SE determines your payroll taxes for Social Security and Medicare. The tax base is your net income, not gross income, allowing deductions for expenses incurred in earning the income. You pay 4.2 percent plus 6.2 percent for Social Security and 1.45 percent plus 1.45 percent for Medicare. You are both employer and employee. Your total is 10.4 plus 2.9 percent or 13.3 percent of your net income in 2011. Without further legislation, that figure for self-employed individuals returns to 15.3 percent, the 2010 figure.
  
  

Disability

• If you become totally disabled and cannot work, you may receive Social Security disability benefits if you qualify. Social Security pays disability benefits from the funds collected from payroll taxes, but divides the taxes into two trust funds. For every $1 you pay in Social Security payroll taxes, 85 cents goes to the Social Security trust fund and 15 cents goes to the disability trust fund. Administrative costs for Social Security and disability together are about one cent on every $1, the Social Security Administration reports.