Social Security Maximum Withholding Through 2021

What Businesses and Individuals Need to Know About Maximum Withholding

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Each year the Social Security Administration unveils the benefit amounts and maximum withholding based on cost-of-living increases. This formula affects how much can be withheld from employee's paychecks to pay Social Security taxes. Employers are also on the hook for their share of Social Security.

What's the Current Social Security Withholding Maximum?

The Social Security maximum taxable income for 2020 is $137,700.

The Social Security maximum taxable income for 2021 is $142,800.

There is no maximum taxable income for Medicare withholding.

This maximum includes both employee wages and income from self-employment.

What Is Social Security Withholding?

The Social Security tax is a federal tax imposed on employers, employees, and self-employed individuals. It is used to pay the cost of benefits for elderly recipients, survivors of recipients, and disabled individuals (OASDI, or Old Age, Survivors and Disability Insurance).

The Social Security tax is one of the payroll taxes paid by employees, employers, and self-employed individuals each year known as FICA (Federal Insurance Contributions Act) taxes. Medicare tax is the other tax in this package. There is no maximum taxable income for the Medicare tax, but there is an additional Medicare tax of 0.9% for high-income single taxpayers with earned income of more than $200,000 (and more than $250,000 for married couples filing jointly).

The Social Security tax rate for both 2020 and 2021 is 12.4%; both the employer and the employee pay 6.2% of the employee's salary. The standard Medicare rates are 1.45% each, for a total of 2.9%. Therefore, the total FICA tax amount is 15.3%. If you are self-employed, you must pay the full 15.3% yourself, but you can take a deduction for half this amount.

Social Security Maximum

Once you reach a maximum set by the Social Security Administration, different rules regarding withholding come into effect.

Employer

The employer must withhold Social Security and Medicare taxes from employees on pay subject to Social Security, up to the maximum amount each year. They must pay Social Security taxes for each employee for earnings up to the Social Security maximum.

Employee

The Social Security cap is the maximum amount that your employer will withhold from your paychecks during the year. If you have more than one job, each employer will withhold up to the maximum. If too much Social Security tax has been withheld, you can claim a refund from the IRS of those Social Security taxes withheld that exceeded the maximum amount when you file your tax return the following year.

Self-Employed

If you are self-employed, you must pay Social Security and Medicare taxes on your self-employment earnings, which is your net earnings on your business tax return. Since you are not an employee, these amounts aren't withheld during the year. You must estimate the self-employment tax and income tax you owe from business earnings and make quarterly estimated payments.

For example, if your only income in 2020 is from self-employment, and the net earnings you report on your business tax form are $135,000, your Social Security and Medicare taxes would apply to the 2020 maximum of $137,700.

If you have both self-employment income and income as an employee of a company, the employee income is considered first when it comes to arriving at the Social Security maximum. If the maximum taxable amount isn't reached from your employee salary or wages alone, then your income from self-employment is added in.

Article Sources

  1. Social Security Administration. "Fact Sheet: 2021 Social Security Changes." Accessed Oct. 16, 2020.

  2. Internal Revenue Service. "What Is the Additional Medicare Tax?" Accessed Oct. 16, 2020.

  3. Internal Revenue Service. "Topic No. 751 Social Security and Medicare Withholding Rates." Accessed Oct. 16, 2020.

  4. Internal Revenue Service. "Self-Employment Tax (Social Security and Medicare Taxes)." Accessed Oct. 16, 2020.