The Social Security Administration (SSA) recently announced that the "wage base" for computing Social Security tax will increase for 2019 to $132,900. This is up from $128,400 for 2018.
Federal law limits the amount of earnings that are subject to the Old-Age, Survivors, and Disability Insurance (OASDI) tax in a given year. This threshold, referred to as the Social Security wage base, means that if you earn more than $132,900, you won't pay OASDI tax on it.
Workers will continue to be taxed at the 6.2% OASDI tax rate on wages up to this base amount. The maximum amount of Social Security tax is $8,239.80 (6.2% of $132,900).
Adding it up
In addition, employees must still pay Medicare tax on all wages. For 2019, an employee will pay:
- 6.2% Social Security tax on the first $132,900 of wages, plus
- 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
- 2.35% Medicare tax (regular 1.45% Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return)
The Social Security and Medicare tax rates for self-employed individuals are doubled. However, these taxpayers can deduct half of these employment tax payments on their federal income tax returns to arrive at adjusted gross income.
So, for 2019, self-employed people will pay:
- 12.4% Social Security tax on the first $132,900 of self-employment income, for a maximum of $16,479.60, plus
- 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return and $125,000 on a separate return), plus
- 3.8% (2.90% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return and $125,000 for married taxpayers filing a separate return)
myPay Solutions automatically updates these rates and limits in our system to keep your tax calculations up-to-date and accurate.
Social Security "earnings test" amounts also go up for 2019
The Social Security program allows workers to start receiving benefits as soon as they reach age 62 — or to put off receiving benefits until age 70 1/2.
"Full retirement age" is when individuals become eligible to receive 100% of their Social Security benefits. Those born in 1942 or before were eligible for full Social Security benefits at age 65. For those born between 1943 and 1960, full retirement age increases incrementally until it reaches 67. For example, individuals born in 1955 can receive 100% of their benefits at age 66 years and 2 months.
Still working? Starting Social Security benefits before reaching your full retirement age bring into play the so-called "earnings test," which limits the amount you can earn while collecting Social Security retirement benefits.
If you're under the federal retirement age, the limit is $17,640 for 2019 (up from $17,040 for 2018). This means that for every $2 over this limit, you must forfeit $1 in benefits. For individuals who reach the federal retirement age in 2019, the earnings limit is $46,920 for the months before you reach your federal retirement age. In this case, $1 in benefits must be forfeited for every $3 over the limit. Starting in the month you reach your federal retirement age, your Social Security benefits won't be reduced no matter how much you earn.
If you're approaching retirement and have questions about the Social Security earnings test, contact us. We can help you maximize your benefits.
For more information, please contact your payroll specialist.