What is max salary for social security

Social Security and Medicare payroll taxes are collected together as the Federal Insurance Contributions Act (FICA) tax. FICA tax rates are statutorily set and can only be changed through new tax law.

Social Security is financed by a 12.4 percent payroll tax on wages up to the taxable earnings cap, with half (6.2 percent) paid by workers and the other half paid by employers. Self-employed workers pay the entire 12.4 percent.

For employers and employees, the Medicare payroll tax rate is a matching 1.45 percent on all earnings (self-employed workers pay the full 2.9 percent), bringing the total Social Security and Medicare payroll withholding rate for employers and employees to 7.65 percent—with only the Social Security portion limited to the taxable maximum amount.

The payroll tax rates shown above do not include an additional 0.9 percent in Medicare taxes paid by highly compensated employees on earnings that exceed threshold amounts based on their filing status:

• $250,000 for married taxpayers who file jointly.
• $125,000 for married taxpayers who file separately.
• $200,000 for single and all other taxpayers.

These wage thresholds, set by law, do not adjust for inflation and therefore apply to more employees each year.

The most you will have to pay in Social Security taxes for 2022 will be $9,114. That’s what you will pay if you earn $147,000 or more. As its name suggests, the Social Security tax goes to the Social Security program. For 2022 it amounts to 6.2% for employees on all income up to $147,000. Employers deduct the tax from paychecks and match it, so that 12.4% goes to the program for each employee. If you’re self-employed, you’ll pay the total 12.4%, though you can deduct half on your tax return. The earnings limit is called the Social Security wage base limit, and it typically goes up every year. The annual rise began in 1972, when the wage base was $9,000.

Consider working with a financial advisor as you assess your taxes and how that will affect how much you receive from the federal government.

What Is the Social Security Tax Limit?

You aren’t required to pay the Social Security tax on any income beyond the Social Security wage base limit. In 2022, this limit is $147,000, up from the 2021 limit of $142,800. As a result, in 2022 you’ll pay no more than $$9,114 ($147,000 x 6.2%) in Social Security taxes.

Keep in mind that this income limit applies only to the Social Security or Old-Age, Survivors and Disability Insurance (OASDI) tax of 6.2%. The other payroll tax is a Medicare tax of 1.45%, and you’ll have to pay that for all income you earn. In fact, for income over $200,000 (or $250,000 for couples filing jointly), the Medicare tax rate rises to 2.35%.

What Is the Social Security Tax?

The OASDI tax is the amount of money taken from your earned income to pay for Social Security benefits. You give up a portion of your salary, and your employer has to pay a matching portion as well. Employees and their employers across the country pay to fund the benefit payments that retirees receive. The idea is that you contribute to Social Security benefits throughout your career. Then, once you retire, current workers will keep contributing to the fund while you receive benefits. That way, the system can sustain itself.

The OASDI tax and Medicare tax are housed under the Federal Insurance Contributions Act (FICA), which is why the FICA acronym may show up on your paycheck.

The Social Security tax is part of why your Social Security benefit is higher if you wait longer to retire. If you delay your retirement until you reach your full retirement age (FRA), then you will have been paying the tax for longer. (Furthermore, the later you start claiming benefits, the less time the system will have to pay you those benefits.) Working longer might also mean that your 35-year average income will be higher, which would also increase your benefit amount.

Other Key Social Security Increases in 2022

Along with the wage base, the retirement earnings test exempt amount rises every year. The exempt amount applies to people who are receiving benefits but have not reached full retirement age (FRA). If you earn more than this amount, the Social Security Administration (SSA) will withhold $1 in benefits for every $2 you earn above the limit. The amount is higher the year you reach FRA, and the SSA will withhold $1 in benefits for every $3 you earn above the limit.

For workers who have yet to reach their FRA, the 2022 earning limit is $19,560, up from the 2021 earning limit of $18,960. If 2022 is the year you will reach your FRA, the limit is $51,960, up from $50,520 in 2021.

Another number that generally increases every year is the benefit amount, which gets a cost-of-living adjustment (COLA). For 2022, the COLA jumped 5.9%, the highest in decades. However in 2023 the COLA climbs 8.7%.

The Takeaway

Despite valid concern about a depletion of funds in the near future, the idea behind Social Security benefits is easy enough to understand. You pay into it while you work, and it pays you back once you stow your briefcase for good. For most salaried employees, the tax you pay is 6.2%. However, that only applies to income you earn up to $147,000; income in excess of that Social Security wage base limit won’t be subject to the tax.