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Tax Update - Social Security Wage Cap and Benefit Amounts Increase for 2020

For 2020, the Social Security wage cap will be $137,700, and social security and SSI benefits will increase by 1.6 percent.

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For 2020, the Social Security wage cap will be $137,700, and social security and SSI benefits will increase by 1.6 percent.

For 2020, the Social Security wage cap will be $137,700, and social security and Supplemental Security Income (SSI) benefits will increase by 1.6 percent. These changes reflect cost-of-living adjustments (COLAs) that are intended to ensure that inflation does not erode the purchasing power of these benefits.

Wage Cap for Social Security Tax

The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components: (1) a 6.2 percent social security tax, also known as old age, survivors and disability insurance (OASDI); and (2) a 1.45 percent Medicare tax, also known as hospital insurance (HI). For self-employed workers, the self-employment tax is 15.3 percent, consisting of: (1) a 12.4 percent OASDI tax; and (2) a 2.9 percent HI tax. OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2020, the wage base is $137,700. Thus, OASDI tax applies only to the taxpayer’s first $137,700 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $137,700. There is no wage cap for HI tax.

Maximum Social Security Tax for 2020

For workers who earn $137,700 or more in 2020: 

  • An employee will pay a total of $8,537.40 in social security tax ($137,700 x 6.2 percent); 
  • The employer will pay the same amount; and 
  • A self-employed worker will pay a total of $17,074.80 in social security tax ($137,700 x 12.4 percent). 
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Additional Medicare Tax 

Higher-income workers may have to pay a 0.9 percent Additional Medicare tax. This tax applies to wages and self-employment income that exceed $250,000 for married taxpayers who file a joint return, $125,000 for married taxpayers who file separate returns, and $200,000 for other taxpayers. 

The annual wage cap does not affect the Additional Medicare tax. 

 

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

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