The 2016 Social Security wage base will not increase. The wage base in 2016 is $118,500. It’s the same as the 2015 Social Security wage base. Until now, the Social Security wage base has increased in each of the last four years.
What is a Tax Wage Base?
Social security taxes, (or OASDI taxes) are the taxes that are taken from your paycheck to contribute to the social security program. However, there is a wage base limit, and earnings above this amount are not taxed.
The social security tax wage bases are per person, and are not impacted by a husband and wife who meet the wage base when adding their incomes together.
What Happens When You Reach the Social Security Limit?
Any earnings over the tax wage base are not subject to social security taxes. Reaching the taxable wage base allows you to take home more of your money in your paycheck and save on taxes.
In fact, I once had a professor in college, who used the social security wage base as an earnings goal each year, because once you earned money over the limit, it was like getting an automatic raise.
However, it’s also important to understand that those same limits will apply when you qualify for Social Security and your benefits are computed.
Social Security Tax Rate
The current social security tax rate is 6.2% of your earnings (or 12.4% for self employed tax), and unlike saving on income taxes, you can’t deduct retirement contributions to save on your social security taxes.
Update: The 2011 Payroll Tax Cut temporarily lowered the social security tax rate for the employee to 4.2% in 2011. The employer will still need to pay 6.2%. The payroll tax cut was extended for 2012. A 2013 payroll tax cut was not included in the Fiscal Cliff Deal.
The social security tax rate is separate from medicare taxes, currently at 1.45% (or 2.9% for self employed), which has no wage base limit, and increased to 2.35% due to the new Health Care Reform Bill for high earners.
Wage Base History
Here are the social security taxable wage base limits for the last few years:
- Wage base 2007: $97,500
- Wage base 2008: $102,000
- Wage base 2009: $106,800
- Wage base 2010: $106,800
- Wage base 2011: $106,800
- Wage base 2012: $110,100
- Wage base 2013: $113,700
- Wage base 2014: $117,000
- Wage base 2015: $118,500
- Wage base 2016: $118,500
More on Social Security
COLA Adjustments. The Social Security Administration, also announced people receiving social security benefits will not get a cost of living adjustment (or COLA) adjustment in 2016.
Not Just Retirement. Social security isn’t just for retirement. In fact, the entire acronym for OASDI tax is Social Security’s Old-Age, Survivors, and Disability Insurance.
Social Security Statements. Be sure to review your social security statement every year and make sure the earnings amounts are correct. Otherwise, An Administrative Error Could Cost You Your Retirement.
Social Security Taxes. If half of your social security benefits plus your other gross income is more than $25,000, you may have to pay income taxes on social security benefits.