Social Security payroll taxes are paid each year up to a maximum amount set by law when you have wages or self-employment income that is covered by Social Security.
This continues even when a person receives monthly Social Security benefits. New earnings are automatically reviewed each year to see if they increase benefits. The best 35 years of earnings are used to compute a person’s retirement amount.
Taxable earnings amounts have changed frequently over the years, with the 2016 amount announced with cost-of-living adjustment (COLA) information.
Related to the annual average wage amount, in 2016 the maximum amount of earnings subject to Social Security tax is $118,500.
This has not changed from 2015 because there is no cost-of-living adjustment (COLA) in 2016.
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 withholding ends.
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 from 1937 to 2015 are shown at www.socialsecurity.gov/planners/maxtax.htm.
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 retirement, survivors and disability benefits and Medicare. Tax rate history is at www.socialsecurity.gov/OACT/ProgData/taxRates.html.
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.