why is there a cap on social security tax
The the 2018 Social Security benefit amounts and the maximum withholding change for the 2018 tax year. P
The maximum taxable earnings for Social Security withholding for 2018 are $128,700. This maximum is up from $127,200 for 2017. P Medicare withholding has no maximum. The maximum withholding amount is adjusted each year by a formula based on cost of living increases. What is the 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 ( ). Social Security tax is one of the paid by employees, employers, and self-employed individuals each year. The Social Security withholding rate is set using a formula based on inflation. The Social Security tax rate is 12. 4 percent; 6. 2 percent is withheld from each of the employer and employee. The full 12. 4 percent is paid by self-employed individuals. The Medicare withholding and employer-paid amounts are added to the Social Security rate to get what s called. The Medicare rates are 1. 45% each, for a total of 2. 9%. So the total FICA tax amount is 15. 3%. P Social Security Benefit vs. Social Security Withholding Sometimes people get the maximum Social Security benefit and the maximum Social Security withholding confused. 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. For someone retiring at full retirement age in 2018, theP Pat $2,788, 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. P 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: 2018 $128,700 2017 $127,200 2016 $118,500P 2015 $118,500 2014 $117,000 2013 $113,700 2012 $110,100 2011 $106,800 2010 $106,800 2009 $106,800 2008 $102,000 The maximum OASDI ( payable by an employee in 2018 would be $7979. 40 ($128,700 Px 6. 2%). There is no maximum Social Security tax payable by an employer. P Social Security Tax vs. FICA TaxP The term Social Security tax or OASDI is often confused with , which include both Social Security and Medicare taxes. What is the Medicare Tax? The Medicare tax rate is 1. 45 percent for both employers and employees, with the self-employed Medicare rate at 3. 3 percent. There is no limit on Medicare taxes; Medicare tax is payable on all income, without a maximum. For higher-income individuals, there is an 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 bothP and from employment (wages and tips) are included in income for the Social Security maximum. PThe 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. P How Self-Employment Tax Affects the Social Security Maximum If your only income is from self-employment, the social security maximum is still in effect. That is, the Social Security portion of your self-employment tax is capped at the maximum profit of the company, depending on the maximum for that year. For example, if you have only self-employment, and the net earnings on your Schedule C is $125,000 for 2017, you would only be taxed for self-employment tax on the 2017 maximum of $127,200. If an individual has income from both employment and self-employment, the employment income is considered first for social security purposes. If the maximum is not reached, then self-employment income is also considered, up to the amount of the maximum. This article on might help clear up some of the confusion. Back to Taxes under the Federal Insurance Contributions Act (FICA) are composed of the old-age, survivors, and disability insurance taxes, also known as social security taxes, and the hospital insurance tax, also known as Medicare taxes.
Different rates apply for these taxes. The current tax rate for social security is 6. 2% for the employer and 6. 2% for the employee, or 12. 4% total. The current rate for Medicare is 1. 45% for the employer and 1. 45% for the employee, or 2. 9% total. Refer to, (Circular E), Employer's Tax Guide, for more information; or, (Circular A), Agricultural Employerвs Tax Guide, for agricultural employers. Additional Medicare Tax applies to an individual's Medicare wages that exceed a threshold amount based on the taxpayer's filing status. Employers are responsible for withholding the 0. 9% Additional Medicare Tax on an individual's wages paid in excess of $200,000 in a calendar year, without regard to filing status. An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. There's no employer match for Additional Medicare Tax. For more information, see. Only the social security tax has a wage base limit. The wage base limit is the maximum wage that's subject to the tax for that year. For earnings in 2018, this base is $128,400. Refer to "What's New" in for the current wage limit for social security wages; or for agricultural employers. There's no wage base limit for Medicare tax. All covered wages are subject to Medicare tax.
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