Employers are required to withhold 6.2 percent of each employee's pay, which is forwarded to the government Social Security fund. The employer must also match this amount, so the total remittance to the government is 12.4 percent. This withholding applies to the first $84,900 of employee pay in each calendar year, though this number increases regularly by act of Congress.

Example. The president of the Humble Pie Company is Elinor Plump. She earned $185,000 in calendar year 2001. She expects to be paid the same amount in 2002, and wants to know how much Social Security tax will be deducted from her pay in that year, so she can budget her cash flow. The calculation is as follows:

If a company takes over another business, or purchases its assets, the buying entity can include the year-to-date wages paid to the acquiree's employees in determining the amount of Social Security taxes withheld. This reduces the amount of withholdings for those employees who earn more than $84,900 per year, and reduces the amount of matching taxes paid by the business.