Social Security Wage Base

The Social Security Administration (SSA) establishes a social security wage base, which sets forth the amount of wages that are subject to social security tax. In 2017, the wage base was increased to $127,200, which is a 7 percent increase from the amount set the prior year. This wage base is subject to a 6.2 percent social security tax, also known as the Old-Age, Survivors, and Disability Insurance Trust (OASDI) tax.

Also included in one’s overall payroll taxes is a 1.45 percent Medicare tax as well as a Medicare surcharge of 0.9 percent if an employee earns in excess of $200,000 a year. Such payroll taxes are also referred to as the Federal Insurance Contributions Act (FICA) payroll taxes. Note that the wage base for social security tax is capped; therefore, you and your employer are only responsible for paying 6.2 percent tax on $127,200.

If you make in excess of this amount, you will not need to pay additional social security taxes. You will, however, still incur Medicare tax, which does not have a threshold amount. You will also incur the Medicare surcharge if you make over $200,000.

The total FICA tax is 15.3 percent in which the employee and employer split the percentage; therefore, each will be responsible for paying 7.65 percent. The Social Security portion (OASDI) is capped every year at a set amount whereas the Medicare portion is not taxed. Therefore, if you earn more money each and every year, you and your employer will still owe Medicare tax. However, if you make over a certain amount each year (depending on the wage cap), your employer will no longer need to pay the OASDI Social Security tax. Within the 7.65 percent, the tax is further broken down as follows:

  • OASDI: 6.2 percent
  • Medicare: 1.45 percent
  • Medicare surcharge if applicable: 0.9 percent

Cost of Living Adjustment

The SSA also provides social security beneficiaries with a cost of living adjustment (COLA), which is based on an increase in the consumer price index for any given year.

Self-Employment Wages

Some payments, known as social security wages, are not subject to FICA taxes. For example, while income from self-employed business owners, i.e. sole proprietorships, is not withheld under the FICA system, such taxes fall under a different law called the employment-tax" target="_blank">Self Employed Contributions Act (SECA). The rates for self-employment tax are 12.4 percent (Social Security-OASDI) and 2.9 percent (Medicare). The maximum amount for Social Security applies to self-employed individuals, and the additional Medicare tax applies to combined employment as well as self-employment income.

Medicare Surcharge

As mentioned, the 0.9 percent Medicare surcharge tax is incurred on all individuals earning at least $200,000 in annual income. Such compensation is inclusive of all wages, compensation, and self-employment earnings. But what if you are married? Would the same amounts apply to married couples filing a joint tax return? The specific thresholds are as follows:

  • $250,000 for married/filing joint
  • $125,000 for married/filing separately
  • $200,000 for single/head of household/qualifying widow(er)

However, from the employer’s perspective, it will be responsible for the 0.9 percent surtax regardless of the type of tax return being filed, as referenced above. Therefore, so long as its employee makes $200,000/year, the employer will be required to pay the 0.9 percent as part of the employee’s payroll taxes.

Other 2017 Social Security Rate Increases

  • Medicare Part B premiums have increased from an average of $104.90/month to $109/month.
  • Those beneficiaries between the age of 62 and 65 in 2017 will be secured $1 in benefits for every $2 in earnings above $1,410/month or $16,920/year, which is a 7.6 percent increase from 2016.
  • Someone turning 66 years old in 2017 can earn up to $3,740/month before his or her birthday without losing benefits, which is an increase of 7.2 percent in the threshold amount from the prior year.
  • The FICA threshold for domestic employees or “nanny tax” will remain the same at $2,000.
  • The threshold for election workers will be $18,000.
  • A maximum social security tax of $15,778.80 will be imposed on self-employed individuals, which will equate to a social security tax of 12.4 percent and a Medicare tax of 2.9 percent.

If you need help determining your social security taxes or learning more about what you may owe, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.