Final answer:
The Social Security tax withheld on a W-2 is based on a 6.2% rate of the employee's gross income up to a certain limit, with both the employee and employer contributing equally. However, economists argue that the employer's contribution may affect employee wages, and independent contractors must pay the full amount themselves.
Step-by-step explanation:
To determine the amount of Social Security tax withheld on a W-2, you can refer to the flat tax rate of 6.2% that is applied to employee's wages. An employee's annual gross income is subject to this percentage until it hits the wage cap limit, which was $128,700 for the year mentioned. This means if an employee earns up to or more than this limit, only the first $128,700 of their income is taxed for Social Security purposes. For incomes below this threshold, the entire amount is taxed.
It's important to understand that both employers and employees contribute equally to Social Security, each paying a 6.2% tax rate on the employee's wages. However, it's theorized by economists that the employer's share may ultimately come out of the employee's potential earnings. Independent contractors, or those participating in the 'gig economy', must cover both the employee and employer portions, which amounts to a total of 12.4%, because they receive a different tax form, known as a 1099.