The U.S. Social Security Administration reveals the amounts of benefits and the maximum wages subject to Social Security taxes each year based on the increase in the cost of living. This formula affects the amount that can be withheld from employee wages to pay Social Security taxes. Employers are also responsible for paying their share of Social Security taxes.
Current Maximum Wages Subject to Social Security Tax
The maximum wages subject to Social Security tax for 2022 is $147,000. The maximum wages subject to Social Security tax for 2023 is $160,200. This maximum includes both employee wages and self-employment income. There is no maximum income subject to tax for Medicare.
What is the Social Security Deduction?
The Social Security tax is a federal tax imposed on employers, employees, and self-employed individuals. It is used to pay for benefits to Social Security beneficiaries, survivors of beneficiaries, and individuals with disabilities and is known as OASDI or Old Age, Survivors, and Disability Insurance.
Social Security Maximum Rules
If an employee earns an amount exceeding the maximum taxable income set by the U.S. Social Security Administration, different rules regarding withholding come into effect.
Employer
Employers must withhold Social Security and Medicare taxes from employees on wages subject to Social Security, up to the yearly allowable maximum. They must also pay Social Security taxes for each employee on earnings up to the Social Security maximum.
Employee
The Social Security maximum is the maximum amount that will be deducted from your wages during the year by your employer. If you have more than one job, each employer will deduct the maximum amount.
Self-Employed Worker
If you are self-employed, you must pay Social Security and Medicare taxes on your self-employment earnings, which are considered net earnings on your self-employment tax return. Since you are not an employee, these amounts are not withheld during the year. You must estimate the self-employment tax and income tax owed from business earnings and make quarterly estimated payments.
Frequently Asked Questions
What is the maximum retirement benefit in Social Security for 2022?
The maximum retirement benefit from Social Security depends on your age in 2022. If you retire at full retirement age, your maximum benefit is $3,345. (Full retirement age is based on your birth date.) This amount increases to $4,194 if you retire at age 70 in 2022.
What is the additional Medicare tax?
This tax is used to fund parts of the Affordable Care Act and imposes an additional tax of 0.9% on individuals’ income above a certain threshold. For individuals, this threshold is $200,000 per year; for married couples filing jointly, it is $250,000.
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Sources:
– U.S. Social Security Administration. “Social Security Changes for 2023”.
– Internal Revenue Service. “What is the Additional Medicare Tax?”.
– Internal Revenue Service. “Topic No. 751 Social Security and Medicare Withholding Rates”.
– Internal Revenue Service. “Self-Employment Tax (Social Security and Medicare Taxes)”.
– U.S. Social Security Administration. “Maximum Taxable Wages”.
– U.S. Social Security Administration. “What is the Maximum Social Security Retirement Benefit Payable?”.
Source: https://www.thebalancemoney.com/annual-maximum-social-security-tax-updated-398473
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