Social Security 2012 Wage Base Increase
Posted by MadisonThe 2012 Social Security wage base will be going up for the first time in a few years. The wage base in 2012 is $110,100. It’s an increase over the 2011 Social Security wage base, which was $106,800.
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), 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%. It is still uncertain if there will be a 2012 Payroll Tax Cut Extension.
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 will increase 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 six 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
More on Social Security
No COLA Adjustments. The Social Security Administration, who made the wage base 2012 announcement also announced that people receiving social security benefits will get a cost of living adjustment (or COLA) adjustment in 2012. Social security benefits will go up 3.6%. They did not increase in 2011.
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.
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Hello Madison!
Thank you for this information–I haven’t paid too much attention to the social security tax in the past, and did not realize if you earned over a certain income, that income was not taxed! Nice to know.
Remember that as part of the extension of the “Bush tax cuts,” Congress decided to reduce the social security rate for employees for 2011 from 6.2% to 4.2%. Employers still have to pay 6.2%.
am i understanding this right….the social security rate went down 2% but medicare tax rate went up from 1.45% to 2.35% so in actuality we will only see a total decrease of 1.10% in taxes in our paychecks
Not necessarily, it depends upon your income level. While the social security tax rate will drop in 2011 by 2%, the medicare tax rate will not go up until 2013 and then only on those who make more that $250,000 a year. Under the new law, starting in 2013, high-income individuals will pay another 0.9 percentage points — so their share will total 2.35% of their wages.
Therefore, if you make less than $250,000, there is no increase. If you make more than that amount, then in 2013, depending on how much more than 250,000 you make, you could see any savings on social security tax more than eaten up by the smaller increase in medicare tax. This is because while there is presently a ceiling of $106,800 on Social Security Tax, there is no ceiling on Medicare tax.
I am on disabilty and want to know how much i can earn with out them cutting me off so 2010 was $1000dollars what is it for 2011
Does the the 2% tax cut apply both to the Employee and the Employer’s matching portion?
Michael,
The 2% cut applies only to the employee portion.
Thank you.
Will the temporary 2011 2% Soc. Sec. tax rate for employees mean I’ll have paid less into Soc. Sec. this year and it will be reflected in lower Soc. Sec. benifits when I’m eligible to retire?
Anne,
Luckily social security benefits are based on your eligible income, not on the amount you paid in.
So the 2% tax cut should not lower your benefits in the future.
Obviously, with social security receiving less money, there’s a greater chance it’ll run out of money sooner, and they’ll have to change the formula in the future… but that’s a whole separate issue!