Social Security Maximum Withholding Through 2020
Information for Businesses and Individuals
The Social Security Administration has announced the 2020 Social Security benefit amounts and the maximum withholding change for the 2020 tax year. The maximum withholding amount is adjusted each year by a formula based on cost of living increases.
The maximum taxable earnings for 2020 are $137,700. Medicare withholding has no maximum. The Cost of Living Increase for Social Security recipients is 1.6% for 2020.
For your 2019 taxes, the Social Security maximum withholding is $132,900.
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 Insurance).
Social Security tax is one of the payroll taxes paid by employees, employers, and self-employed individuals each year. Medicare tax is the other tax in this package. There is no maximum on Medicare tax, but there is an additional Medicare tax of 0.9% for high-income taxpayers with earned income of more than $200,000 ($250,000 for married couples filing jointly).
The Social Security tax rate is 12.4%; 6.2% is withheld from each of the employer and employee. The Medicare withholding and employer-paid amounts are added to the Social Security rate to get what's called FICA taxes. The Medicare rates are 1.45% each, for a total of 2.9%. So the total FICA tax amount is 15.3%. If you are self-employed, you must pay the full 15.3%, but you can take a deduction for half this amount.
How the Social Security Maximum Affect You:
Employer. You must withhold Social Security and Medicare taxes from employees on pay subject to Social Security, up to the maximum amount each year. You also must pay Social Security taxes for each employee, for earnings up to the Social Security maximum.
Only specific types of payments to employees are subject to Social Security tax.
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 tax on your self-employment earnings (your net income 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 is from self-employment, and the net earnings you report on your business tax form are $135,000 for 2019, you would only be taxed for self-employment tax on the 2019 maximum of $132,900.
What If I'm an Employee and Also Self-employed?
You must pay Social Security and Medicare tax on both employment income and income as an employee. The employment income is considered first. If the Social Security maximum has not been met, then income from self-employment is used up to the maximum.
Social Security: Benefit vs. Withholding
Sometimes people get the maximum Social Security benefit and the maximum Social Security withholding confused. Simply stated, the benefit is received by those eligible for these benefits, while the withholding is taken from the pay of workers in the U.S.
The maximum benefit is the highest amount someone can receive as a Social Security benefit each month. This benefit is based on age at retirement and past earnings. For someone retiring at full retirement age in 2019, the maximum benefit at $2,861, with lower amounts for people retiring at less than the full retirement age.
The maximum withholding is the most that can be taken from an employee's pay for the OASDI (Social Security) fund in a given year. The maximum OASDI (Social Security) tax payable by an employee in 2019 would be $8239.80 ($132,900 x 6.2%).
What are the Current and Past Social Security Maximums?
Social Security taxes are withheld up to a maximum amount, which changes each year. Here are the maximum wages subject to Social Security for the past few years:
- 2019 $132,900
- 2018 $128,400
- 2017 $127,200
- 2016 $118,500
- 2015 $118,500
- 2014 $117,000
- 2013 $113,700
Social Security Tax vs. FICA Tax
The term "Social Security tax" or "OASDI" is often confused with "FICA taxes," which include both Social Security and Medicare taxes.
What is the Medicare Tax?
The Medicare tax rate is 1.45% for both employers and employees, with the self-employed Medicare rate at 3.3%. There is no limit on Medicare taxes; Medicare tax is payable on all income, without a maximum. For higher-income individuals, there is an additional Medicare tax of 0.9% on income over a specific maximum, depending on the individual's tax filing status.
Self-Employment Tax and Social Security Tax
Income from both self-employment and from employment (wages and tips) are included in income for the Social Security maximum. The total self-employment tax rate is 15.3% of the net profit of the company owned by the individual, with the Social Security portion at 12.4% of that total.
Social Security Administration Fact Sheet." 2020 Social Security Changes." Accessed Oct. 13, 2019.
IRS. "Topic No. 751 Social Security and Medicare Withholding Rates." Accessed October 2, 2019.
IRS. Instructions for Form 941. "5a-5e. Taxable Social Security and Medicare Wages and Tips," Page 8. Accessed Oct. 2, 2019.
IRS. "Understanding Employment Taxes." Accessed Oct. 2, 2019.
Social Security Administration. "Maximum Taxable Earnings." Accessed October 1, 2019.
IRS. "Self Employment Tax (Social Security and Medicare Taxes)." Accessed Oct. 13, 2019.
Social Security Administration "What is the maximum Social Security retirement benefit payable?" Accessed Oct. 2, 2019.
IRS. "Questions and Answers for the Additional Medicare Tax," Accessed Oct. 13, 2019.