Tax Insights

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Taxable social security wages are rising for 2021

The Social Security Administration announced a 2021 increase to the amount of wages subject to the old age, survivors, and disability insurance (OASDI) tax. The wage limit was $137,700 for 2020 but will rise to $142,800 starting in 2021. This amount changes each year with the national average wage index.

The current Social Security (OASDI) tax rate is 6.2%. An employee who reaches the threshold for their wages will pay the maximum tax of $8,853.60 for year 2021 with the employer matching it. We can find this by multiplying the 6.2% rate by the wage limit of $142,800.

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In addition, in 2021 self-employed individuals will pay the 12.4% Social Security (OASDI) rate up to the limit of $142,800 which equals out to a maximum tax of $17,707.20.

Unlike the Social Security tax wage limit of $142,800, the Medicare tax rate of 1.45% is applied to all applicable wages no matter how high.

The Additional Medicare Tax (from the ACA) is withheld from wages of high-income wage earners. If you are single and earning more than $200,000 or married filing jointly earning more than $250,000 you will have to pay an additional (.9%) in Medicare taxes with your tax return. Employers are required to withhold this tax from your wages when they pay you more than $200,000 in a calendar year regardless of filing status. You are responsible for paying any Additional Medicare tax that is not covered by the employer’s withholding with your personal tax return.

If you have any questions, do not hesitate to contact a Henry+Horne professional adviser.

Ryan Murphy