When you have wages or self-employment income that is covered by Social Security, you pay Social Security payroll taxes each year up to a maximum amount that is set by law. This continues even when a person receives monthly SSA benefits. Taxable amounts have changed frequently over the years, with changes for 2014 announced with cost-of-living adjustment (COLA) information.
Related to the 2014 cost-of-living-adjustment and the increase in average wages, the maximum amount of earnings subject to Social Security tax is $117,000 in 2014. You will not see a change in Social Security tax paid unless working in 2014 and earning over the 2013 taxable earnings base of $113,700.
Dating back to 1939 legislation, the Federal Insurance Contributions Act (FICA) is the official Internal Revenue Code name for Social Security payroll tax. Whether called FICA or Social Security payroll tax, it is the same thing.
Changes in the yearly maximum taxable earnings amounts from 1937 to 2014 are shown at http://www.socialsecurity.gov/planners/maxtax.htm.
While amounts of maximum taxable earnings have changed frequently, worth mentioning is that the tax rate has stayed the same (see notes at bottom) since 1990. Tax rates from 1937 to 2014 are shown at http://www.socialsecurity.gov/OACT/ProgData/taxRates.html.
The combined tax rate for Social Security and Medicare is 7.65 percent, paid by both employers and employees, and 15.3 percent paid by the self-employed. This tax money helps fund Social Security and Medicare. For 2014, covered wage or self-employment tax rates are:
- Employers and Employees: the Social Security tax rate is 6.2 percent on earnings to $117,000. The Medicare tax rate is 1.45 percent on all earnings.
- Self-employed: the Social Security tax rate is 12.4 percent on earnings to $117,000. The Medicare tax rate is 2.9 percent on all earnings..
Medicare payroll tax does not have a maximum taxable base limit. It continues for all applicable wage and self-employment income during the year even after Social Security tax ends.
If you have more than one job in a year, each employer must withhold Social Security taxes from your wages without regard to what the other employers have withheld. A result is that you may potentially have Social Security taxes withheld that exceed the maximum. You can claim a refund of the overpaid taxes when you file your personal income tax return with the Internal Revenue Service.
Note 1 – Social Security: Temporary economic stimulus legislation reduced the Social Security payroll tax rate paid by employees and self-employed workers by 2 percent in 2011 and 2012. Amounts equal to the tax revenue not received were transferred to Social Security from the General Fund of the Treasury.
Note 2 – Medicare: As of January 2013 and separate from the payroll tax, individuals with earned income of more than $200,000 ($250,000 for married couples filing joint income taxes) pay an additional 0.9 percent in Medicare taxes.