Social Security Maximum Withholding 2016

Social Security Maximum - Information for Busineses

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For the first time in many years, the Social Security maximum will not increase in 2016. The maximum taxable earnings for Social Security (OASDI only) for 2016 will remain at $118,500, the same as the maximum for 2015 earnings. 

The Social Security press office made this announcement, which includes information on changes to other levels of earnings and benefits. 

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 (OASDI Insurance). Social Security tax is one of the payroll taxes paid by employees, employers, and self-employed individuals each year.

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.

Important Note: The "payroll tax cut" of 2% in the Social Security tax rate for employees (not employers) expired January 1, 2013. This cut was in effect for 2011 and 2012 payroll taxes.

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:

  • 2016 $118,500 
  • 2015 $118,500
  • 2014 $117,000
  • 2013 $113,700
  • 2012 $110,100
  • 2011 $106,800
  • 2010 $106,800
  • 2009 $106,800
  • 2008 $102,000

To clarify, the maximum OASDI (Social Security) tax payable by an employee in 2015 would be $7,347 ($118,500 x 6.2%).

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 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 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. 

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 2016, you would only be taxed for self-employment tax on the 2016 maximum of $118,500. 

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 Income from Employment and Self-employment might help clear up some of the confusion.

Back to FICA Taxes Explained

 

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