What Is the Social Safety Wage Base?

Paying Social Safety tax is a time-honored custom—since 1937, to be actual. Each employers and workers pay the tax. However when an worker hits the Social Safety wage base, it’s recreation over for withholding and contributing the tax.

Though the Social Safety tax charge typically doesn’t change from yr to yr, the Social Safety taxable wage base does. 

Learn on to study extra about Social Safety tax. Study what the withholding charge is, what the wages fund, and—after all—the wage base.   

Your 1-minute overview of Social Safety tax

Social Safety tax is an employment tax employers withhold from worker wages and contribute an identical portion. Each Social Safety and Medicare taxes make up the payroll tax often called FICA. 

Right here’s a fast recap of employment taxes and who pays what:

• Federal earnings tax: Worker 
• FICA tax: Worker and employer
• Federal unemployment tax: Employer
• State unemployment tax: Employer (plus worker in some states)
• State earnings tax (if relevant): Worker
• Different state taxes (if relevant): Worker
• Native earnings tax (if relevant): Worker 

The Social Safety Act, which is the legislation that began this system, was signed into legislation in 1935. Social Safety is a social insurance coverage program. The Social Safety Administration is the federal company that administers this system. 

Social Safety tax charge 

The Social Safety tax withholding charge is 6.2%. You will need to withhold 6.2% from every worker’s wages. The Social Safety employer contribution can also be 6.2%. 

Let’s say an worker receives $1,000 every paycheck. You will need to withhold $62 ($1,000 X 0.062) from their wages and pay an extra $62 for Social Safety tax.

Once more, each Social Safety and Medicare make up FICA tax. Medicare tax is 1.45%. So, FICA tax is 7.65% for the worker portion and seven.65% for the employer portion (6.2% + 1.45%). 

What do Social Safety wages fund?

Social Safety tax funds a variety of issues, together with advantages for:

• Retired staff
• Retired staff’ dependents
• Disabled staff’ dependents
• Survivors 

In keeping with the Social Safety Administration, retired staff obtain a median month-to-month Social Safety good thing about $1,514. Disabled staff obtain a median month-to-month good thing about $1,259. 

Social Safety taxes additionally go in direction of paying for the administration of this system. After paying out advantages and administration prices, there’s a surplus. The federal authorities borrows remaining cash from the Social Safety fund. The federal government is accountable for paying curiosity on the borrowed funds.

Social Safety wage base 2022

Now, onto the good things. The Social Safety withholding restrict. 

Solely withhold and contribute Social Safety taxes till an worker earns above the wage base. Keep up-to-date with the annual Social Safety wage base as a result of it typically adjustments annually. 

The 2022 Social Safety wage base is $147,000.

After an worker earns above the annual wage base, don’t withhold cash for Social Safety taxes. And, don’t contribute anything. 

Not all workers will earn above the withholding restrict. If an worker doesn’t meet this wage base, proceed withholding and contributing year-round.

The utmost Social Safety contribution in 2022 is $9,114 ($147,000 X 0.062).

For those who withhold greater than $9,114 (2022), you surpassed the wage base and should reimburse your worker. 

Do not forget that the quantity you withhold for every worker relies on how a lot they earn.

Do different taxes have a wage base?

Social Safety tax is the one federal tax workers pay with a wage base. Though Medicare additionally makes up FICA tax, it doesn’t have a wage base. As a substitute, it has an extra tax as soon as an worker earns a specific amount. 

Remember that some state taxes, like SUTA tax, and federal unemployment tax even have a wage base. 

Social Safety wage base historical past

Do you take pleasure in historical past? Check out this record of Social Safety wage bases since 2000: 

This text has been up to date from its unique publication date of 05/07/2015.

This isn’t meant as authorized recommendation; for extra data, please click on right here.