To stay compliant, you need to be operating with the right data. This article has been updated with the correct figures for 2021.
Both employees and employers have to pay social security tax and split the total amount due for each employee. Currently, the social security tax withholding rate is 6.2% for both employees and employers. For those self-employed, the rate is 12.4% because they have no employer to split the tax.
However, the Old Age, Survivors and Disability Insurance (OASDI) program sets a limit on how much of an employee’s income can be taxed in a given year. This limit changes each year and is based on the average wage index.
The Social Security Wage Base is the maximum gross income on which Social Security tax can be imposed on an employee. The limit is $142,800 for 2021, meaning any income you make over $142,800 will not be subject to social security tax. Given these factors, the maximum amount an employee and employer would have to pay is $8,853.60 each ($17,707.20 for the self-employed)..
What is the Medicare Tax Limit?
There is no wage limit for Medicare tax, which is currently 1.45% and applied to all covered wages paid. Both employees and employers have to pay this rate—the self-employed owe all 2.9%.
Keep in mind, if you make more than $200,000, your income is subject to an additional 0.9% Medicare tax (employers do not have to pay this additional tax). The additional tax is applied in these circumstances:
- Married filing jointly and earn wages more than $250,000/year
- Married filing separately and earn wages more than $125,000
- Single and earn wages more than $200,000
- Head of household (with qualifying person) and earn more than $200,000
- Qualifying widow(er) with dependent child earning more than $200,000
What is the FICA Tax?
Short for Federal Insurance Contributions Act, FICA is a combination of the Social Security tax and Medicare tax. On a pay stub, it may appear as FICA (OASDI). For 2021, the total amount of FICA tax withheld totals 15.3%, again with most employees paying half, splitting the amount with their employer (unless you’re self-employed, then you have to pay the entire 15.3%).
Social Security Changes for 2021
Recipients of Social Security benefits should see a 1.3% cost of living adjustment in their monthly payments. But before you get too excited, know this bump will only amount to $20 per month for the average recipient. The average monthly Social Security payout for 2021 is $1.540 while the maximum monthly benefit for a worker retiring at full retirement age increased $137 to $3,148.
If you work while collecting Social Security, your earnings limit increased for 2021. Prior to reaching full retirement age, you can earn $18,960 before deductions are made from your Social Security payments. If you’re working at full retirement age, you can earn $50,520 before your payments are dinged.
If you’re one of the 10 million Americans who qualify for Social Security disability payments, you’ll also see a slight increase. For those designated as legally blind, payments will increase $70 to $2,190 a month. For the non-blind, monthly benefits increased $50 to a maximum of $1,310.
Paycor Can Help with Payroll Tax
With Paycor as your HR and payroll partner, you’ll have a dedicated team equipped to handle payroll processing, including: check printing, payroll tax filing, W-2 and 1099 processing and reporting—all while maintaining tax compliance. With the right technology and expertise, you can make a difference in your organization. Want to learn more? Talk to a Paycor representative today.