What Are Social Security Contribution Limits
While most wages and self-employment earnings are potentially subject to Social Security taxes, the total amount of actual tax liability in a calendar year is limited in two main ways. One, there is a hard cap on the total amount of tax for retirement and disability. Two, certain deductions can reduce the amount of earnings subject to taxation, just as with federal income tax albeit with some differences in allowable deductions.
The Social Security – aka FICA (Federal Insurance Contributions Act) – tax is actually in two parts:
- Social Security Retirement and Disability (Old Age, Survivors, and Disability Insurance – OASDI)
- Medicare Hospital Insurance (HI)
Each type has its own tax rate(s) and limit on earnings subject to taxation. Your taxable balances and limits reset on January 1st of each year.
There are a few specific categories of employees who are not subject to FICA taxes – and an even smaller number subject to only one type. But this exemption is based on the individual’s status and not the nature of the wages paid. Examples of FICA-exempt categories include student employees working at their college or university and non-US resident employees working on certain visas.
Social Security: Retirement and Disability Contribution Limits
OASDI taxes – as is probably evident – fund payments to eligible retirees, dependents, and disabled individuals.
The tax rate for employees is 6.2% with employers kicking in a matching amount. Employers are required to collect and remit these taxes through payroll deductions.
Self-employed individuals pay the full 12.4%. They remit their FICA contributions with other federal tax payments.
This tax is, however, capped by setting a limit on how much income is subject to it. The taxable base increases each year. As described by the Social Security Administration, this change is based on the national wage index.
The 2021 taxable wage limit is set at $142,800. So an employee fortunate to make $142,800 or more in subject income will pay no more than $8,853.60 in OASDI taxes for the calendar year with their employer paying the same amount. A self-employed individual will pay the full $17,707.20.
Social Security: Medicare Contribution Limits
Medicare taxes, of course, fund medical care for eligible individuals.
Unlike with OASDI taxes, the Medicare rate has two levels. A higher rate – known as the Additional Medicare Tax – applies to all income over a certain level in the calendar year based on filing status.
Basic Tax Rate
The tax rate for Medicare is 1.45% of subject earnings for employees with employers adding the same amount. The self-employed rate is the full 2.90%.
Additional Medicare Tax
The additional tax rate is 0.9% and is paid only by the earner – there is no employer match. It applies to both employee wages and self-employment income, as well as railroad retirement payments.
Employers are required to start deducting the additional amount once an employee’s taxable earnings go over $200,000 for the calendar year, regardless of the person’s filing status. The individual’s final tax liability, however, is based on filing status.
The additional tax rate applies only to those earnings over the threshold as set by the taxpayer’s filing status. You’ll find the chart below on the IRS website.
|Filing Status||Threshold Amount|
|Married filing jointly||$250,000|
|Married filing separate||$125,000|
|Head of household (with qualifying person)||$200,000|
|Qualifying widow(er) with dependent child||$200,000|
While there used to be a cap on the amount of income subject to HI taxes, that limitation was removed in 1993. There is currently no cap in place, so all taxable income will be included for the calendar year.
What Wages are Subject to Social Security Tax?
It’s not possible to cover every possible income category and deduction, particularly for self-employed individuals. But let’s review the broad categories with a focus on employees (e.g., not self-employed).
Start with total gross income. For employees, this will include categories such as
- Flex dollars added to earnings
In general, W-2 employees can assume all income appearing on a paycheck is potentially taxable unless specifically excluded (check the description on your pay advice or ask the Payroll team when in doubt).
Earnings subject to FICA taxes are calculated by taking the above income and deducting allowable items. The most common ones – all employee contributions to various benefit plans – are
- Medical insurance premiums
- Dental insurance premiums
- Vision insurance premiums
- Flexible Spending Account (FSA) contributions, both medical and dependent
- Health Savings Account (HSA) contributions
Your employer may offer other benefits for which your contribution is also excluded from FICA taxation. Check with your HR or Payroll departments for details.
Self-employed individuals should talk to their tax professional to make sure all income and deductions are calculated correctly for purposes of FICA taxation.
Notably, contributions to employer retirement plans – ex., 401(k) or 403(b) – do not reduce your taxable income for purposes of FICA. This is a big difference as compared to Federal income taxes.
Calculate your FICA taxes by subtracting allowable deductions from total income and applying the relevant percentage.