Both employers and employees are liable to pay taxes and this tradition began in 1937 precisely. However, employees striking social security wages base look up to tax withholding and contribution differently.
To all those who’re confused between the social security tax rate and the social security wage base, the former is usually constant every year. It’s the social security wages base that may change year by year. We’re here with a brief guide on the basics of social security wages, some peep-in to the wage base history & more. Go on reading & get your doubts cleared.
What are Social Security Wages?
The tax withheld by employers from each employee’s wage & the same amount is contributed as tax is known as social security wages. In other words, social security and Medicare taxes together mean payroll tax aka FICA taxes.
This social security tax is used for funding a lot of benefits for the following purposes:
➡ Survivors
➡ Retired Workers
➡ Dependents of retired workers
➡ Dependents of disabled workers
Social Security Wage Base History
Year Social Security Wage Base
2021 $142,800
2020 $137,700
2019 $132,900
2018 $128,400
2017 $127,200
2016 $118,500
2015 $118,500
2014 $117,000
2013 $113,700
2012 $110,100
2011 $106,800
2010 $106,800
2009 $106,800
2008 $102,000
2007 $97,500
2006 $94,200
2005 $90,000
2004 $87,900
2003 $87,000
2002 $84,900
2001 $80,400
2000 $76,200
Who pays what?
Knowing who pays what is very important as long as tax withholdings and tax payments are concerned.
Here is a classification of whether the employee or the employer should pay a particular tax:
Employer
➡ FICA Tax
➡ Federal Unemployment Tax
➡ State Unemployment Tax
Employee
➡ Federal Income Tax
➡ FICA Tax
➡ State Income Tax
➡ Local Income Tax
➡ Other State Taxes
You can easily discover that FICA tax is paid by both employers and employees. Let’s dig this in deep.
How does the Social Security Tax work?
As mentioned above, the social security tax or FICA tax is a sum of social security wages and Medicare deductions. We can say that FICA tax is calculated on the gross pay of an employee.
Do you know? A total of 15.3% of FICA tax withholdings is permitted where employees and employers contribute half amounts. Breaking down further, the employee contributes 7.65% of their gross income which is a sum of 6.2% Social Security tax & 1.45% of Medicare tax. The same applies to the employer too.
Social Security Wage Base 2021
What could be the latest social security wage base limit for 2021? An employee is only liable to pay Social Security taxes until he is earning above the wage base.
The updated Social Security Wage Base 2021 is $142,8000 while the previous year i.e. 2020 was $137,700.
If the employee is earning above the wage base, neither social security taxes are deducted nor any tax amount withheld. However, all employees are not earning over these withholding limits. This makes employers deduct the social security tax all around the year unless they cross the withholding limit.
2020 marked the annual social security contribution limit as $8,537.40 while the maximum social security contribution for 2021 is expected as $8,853.60.
In a nutshell, the deduction is influenced by the gross earnings of the employee.
Do these wages affect the self-employment tax?
You’ll likely question if the social security wages apply to self-employed individuals too. Back to basics, self-employed persons, contractors, and freelancers are exempted from any benefits as well as tax withholdings from the firm. Thus, they’re required to pay only half of the social security and Medicare taxes.
This calculation for independent contractors is based on their net earnings for the financial year. Also, it is not concerned with the types of earnings made during the year.
Social Security Wages Reported on W2-Form
W-2 Form must include both wages subject to income tax & social security wages provided to employees. You have to enter details in the respective boxes i.e.:
1. Box #1 – “Wages, Tips & Other Compensation” This is the amount mentioned on the employee’s tax returns statement
2. Box #3 – “Social Security Wages” This amount is subject to the Social Security Taxes and is used by the Social Security Administration for calculating Social Security Benefits.
Please find that tips are subjected to be considered for both income tax and social security wages. But, as they’re calculated separately, they should be mentioned in Boxes 7 and 8.
You should also know that only Social Security taxes did not have wage base limits, but also applies to SUTA tax, federal unemployment tax, and so on.
The Takeaway
By the time you’re here, you’ve explored the Social Security Tax Rates over the years. In case if you want to file taxes or looking out for W-2 Forms anytime for filing tax returns, you may try the paystub generator. It’s a hassle-free tool to help you with paychecks as well as legal forms for filing taxes. Have a look!
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