Do You Know About the Social Security Wage Base?

Determine if you are withholding as much as you should be and when to stop.

Social Security tax is a tax that applies to both employees and employers. As an employer, you are required to withhold a certain percentage of each employee’s paycheck and to make a matching contribution. Social Security tax does not change each year (with a few exceptions). However, the case is not the same as the Social Security wage base.
The tax limit changes annually with Social Security. Your Social Security tax withholding may be incorrect if you do not know the current wage base. Learn more below about Social Security and the wage base.

The Social Security Act was signed into law in 1935 to serve as a social insurance program. According to President Roosevelt, this law was to give a measure of protection to citizens and their families in the event of a loss of a job and “against poverty-ridden old age.”

Social Security pays monthly benefits to its employees who are retired. Tax dollars go toward a fund that is distributed to people who are disabled, widows, widowers, and children of employees who have passed away.

Social Security Taxes also are put toward the administration of the program. After benefits and administration costs are paid, the surplus goes to the government as a loan, which is paid back with interest.

Social Security Withholding Rate

The Social Security withholding rate is 6.2 percent, meaning you must withhold 6.2 percent of each of your employees’ wages and your contribution must also be 6.2 percent.

Yet if you are self-employed, you must pay a higher rate, at 12.4 percent.

Social Security Wage Base

You only need to withhold and contribute taxes toward Social Security until a certain salary is reached by your employee. In 2018, the limit for Social Security contribution is $128,400. This limit can change each year so keep up to date with the annual Social Security wage base.

Once your employee reaches this limit, you do not withhold any more money from Social Security taxes and you do not contribute anything more.