social security wage base for 2020 announced 6

2020 Social Security Wage Base Limit Increase

The Social Security withholding rate is unchanged for 2020 and remains at 6.2 percent, up to the maximum taxable amount. The Federal Insurance Contributions Act (FICA) tax rate — which is the combined total of the Social Security tax rate and the 1.45 percent Medicare tax rate — also remains unchanged at 7.65 percent. A maximum wage, also often called a wage ceiling, is a legal limit on how much income an individual can earn. As of 2017, the employee share of Social Security and Medicare taxes is 7.65%. If you make over $200,000, remember to account for the Additional Medicare Tax.

The latest Social Security adjustments come amid growing concerns about the program’s solvency. The trust funds used to pay benefits are expected to run out in 2035, the trustees’ report showed in May. The 2025 adjustment has a bigger impact on self-employed workers because «they’re paying both sides of it,» meaning they owe the full 12.4%, according to Lovison, who is also a certified public accountant. The limit for 2025 will be $176,100, up about 4.4% from $168,600 in 2024. Earnings above those caps aren’t subject to Social Security taxes but still incur levies for Medicare.

Taxable Wage Base Announced

The official COLA, determined by the SSA each fall, will be announced in October. On Wednesday, August 20, individuals who receive retirement, spousal, or survivor benefits and whose birthdays fall between the 11th and 20th of any month will get their monthly checks. In the meantime, some advocates have pushed to increase the Social Security wage base to provide more funding. Delaying benefits past your full retirement age will increase them by 2/3 of 1% each month (8% annually), until you turn 70.

What is the taxable wage limit?

The IRS rounds Social Security retirement ages up to the next higher integer for covered compensation purposes, even though the actual Social Security full retirement age increases in two-month increments. Qualified plans have the option to determine permitted or imputed disparity using either actual or rounded covered compensation. Social Security benefits payable in 2020 will increase by 1.6%, the Social Security Administration (SSA) announced Oct. 10 in updates that include the 2020 taxable wage base and the 2018 national average wage. PBGC likewise has released inflation-indexed premium amounts for next year, and Mercer has estimated the maximum guaranteed benefit for 2020. IRS has yet to issue 2020 covered compensation, but Mercer has projected those tables using the published taxable wage base.

The government also collects 2.9% in Medicare payroll taxes, with workers and employers each paying 1.45%. Your full retirement age (FRA) is when you become eligible to receive your base monthly Social Security benefit, known as the primary insurance amount (PIA). Starting this year, FRA is 66 years and 10 months for people born in 1959, a two-month increase from the FRA of people born in 1958. Anything you earn above that limit isn’t subject to Social Security payroll taxes and therefore doesn’t increase your future benefit. That means whether you earn $176,101 or $1 million, only the first $176,100 counts toward your Social Security benefit calculation. ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation.

Most people won’t qualify for the maximum benefit — but here’s what you can do

The change means more payroll taxes withheld for certain workers, but «there’s very little you can do» to avoid it, said certified financial planner Sean Lovison, social security wage base for 2020 announced founder of Philadelphia-area Purpose Built Financial Services. Plans can contribute a higher percentage to base salaries above an integration base. If that integration base is identical to the SSWB the contributions may be double above the base not to exceed 5.7% for excess plans. For offset plans the defined-contribution plan may base contributions on total base salary and then reduce or «offset» the contribution rate for salary below the integration base.

Defined contribution plans

• For 2025, the FICA tax rate for employers will be 7.65% — 6.2% for Social Security and 1.45% for Medicare (the same as in 2024).
• You pay Medicare tax at 1.45 percent on all wages and taxable pretax deductions.
• One is for Old Age, Survivors and Disability Insurance, which is commonly known as the Social Security tax, and the other is for Hospital Insurance, which is commonly known as the Medicare tax.
• ADP encourages readers to consult with appropriate legal and/or tax advisors.

To qualify for the maximum Social Security benefit of $5,108 a month in 2025, you need to have earned at or above the wage base limit for 35 years. So if you’ve been working since the 1980s or 1990s, the wage base limit for those years would’ve been less than $176,100. But to qualify for the max benefit, you had to earn at or above the limit for each of those years, whatever the threshold was at the time. Back in 1980, you needed to earn at least $25,900, for example, and in 1990, you needed to earn $51,300.

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That’s enough to help cover a few bills, but it’s far from what you may need for a comfortable retirement. The offers that appear on this site are from companies that compensate us. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.

• As part of your overall payroll taxes, the federal government requires employers to collect the FICA (Federal Insurance Contributions Act) tax.
• Some of the guaranteed amount may be paid from the plan’s assets, and participants may receive more if the plan is better funded or PBGC can recover other amounts from the plan sponsor.
• Social Security taxes fund Social Security benefits and the Medicare tax goes to pay for the Medicare Hospital Insurance (HI) that you’ll get when you’re a senior.
• There is no limit to the wages subject to the Medicare tax; therefore, all covered wages are still subject to the 1.45% tax.

Legal

As of 2013, you pay Social Security tax at 6.2 percent on your wages and taxable pretax deductions, up to the annual wage limit of $113,700. You pay Medicare tax at 1.45 percent on all wages and taxable pretax deductions. As a single person, if you earn more than $200,000 for the year, you must pay an additional 0.9 percent in Medicare tax on the excess amount. In 2025, retirees receiving Social Security benefits will be able to earn $62,160 in the year they reach full retirement age before their benefits are reduced by $1 for every $3 in earnings over the limit.

It is also the maximum amount of covered wages that are taken into account when average earnings are calculated to determine a worker’s Social Security benefit. The Affordable Care Act expanded the Medicare payroll tax to include the Additional Medicare Tax. This new Medicare tax increase requires higher wage earners to pay an additional tax (0.9%) on earned income. The Social Security Wage Base is the maximum gross income on which Social Security tax can be imposed on an employee. The limit is $137,700 for 2020, meaning any income you make over $137,700 will not be subject to social security tax. Given these factors, the maximum amount an employee and employer would have to pay is $8,537.40 each ($17,074.80 for the self-employed).

PBGC Premiums and Guaranteed Benefits

Treat it as one piece of your retirement income, not the whole picture. Many people start collecting Social Security as soon as possible at age 62, either because they’re done working or they need the cash. Keeping a $176,101 salary only works for this year — in 2026 and 2027, you’ll need to earn even more, since the threshold typically bumps up a little each year. Foreign nationals working in the United States are subject to OASDI and Medicare taxes unless exempted under a Social Security Totalization Agreement between the United States and their country of residence. The print-friendly PDF provides tables showing these key Social Security and PBGC amounts for 2020 and prior years.