When you get a paycheck, you've probably noticed Social Security taxes have been taken out of it. These taxes fund the retirement and disability benefits system. And the amount you pay into the system has a direct impact on the benefits you eventually receive.
But how much will you pay into Social Security for the year? It depends on your income. But no matter how much you earn, there's a maximum annual limit on the amount of Social Security tax you could owe.
This is the maximum Social Security tax for 2020
The maximum Social Security tax you could owe in 2020 is $8,537.40 for employees and $17,074.80 for those who are self-employed. Most people do not pay the maximum.
The maximum tax is determined based on the Social Security wage base limit, which changes every year. Once you hit it, any additional income you earn isn't subject to Social Security tax. For 2020, the wage base limit is $137,700.
Because of the wage base limit, you'll only have Social Security taxes taken out of your first $137,000 in income, no matter how much you make. Social Security taxes equal 6.2% for employees and 6.2% for employers. So if you make $137,700 or more and pay a tax of 6.2% up to the wage base limit, you'll pay the maximum tax of $8,537.40.
Those who have no employer are responsible for paying the entirety of their Social Security tax, which adds up to 12.4%. If you're taxed on income up to the wage base limit, you'll pay the maximum levy of $17,074.80.
If you make less than the wage base limit, your Social Security taxes in 2020 will equal 6.2% of your total salary, or 12.4% of your earnings if you're self-employed. If you make $50,000, this would mean your taxes would total $3,100 or $6,200 if you're self-employed.
The wage base limit went up in 2020
In 2019, Social Security taxes were charged on just $132,900 in income but the wage base limit is going up in 2020. This $4,800 increase could mean high earners who make more than $132,900 could pay up to $297.60 more in Social Security taxes (or $595.20 for the self-employed).
There's no wage base limit for Medicare
Social Security taxes are part of your FICA taxes (FICA stands for Federal Insurance Contributions Act). These include both Medicare and Social Security tax.
While Social Security taxes are capped at the wage base limit, there's no cap on Medicare taxes. You'll pay a 1.45% tax on your entire income to fund Medicare and your employer will also pay 1.45%. If you're self-employed and have no employer to cover half your Medicare taxes, you'll pay the full 3.08% Medicare tax on all of your income.
High earners will be subject to a .9% Additional Medicare Tax with incomes above $200,000 as a single filer or $250,000 if married filing jointly.
Now you know the maximum Social Security tax you could owe in 2020
If your income is below the Social Security wage base limit, you'll pay Social Security tax on all the money you earn and still won't pay the maximum tax. But high earners could find their tax bills going up a little bit this year, as the increase in the wage base limit raises the total amount you could owe.
The good news is, this extra tax can mean you'll get more money from Social Security in your senior years when you may need the cash to help fund a secure retirement.