The Social Security Administration (SSA) has officially announced that the upper limit of earnings subject to Social Security Old-Age, Survivors, and Disability Insurance (OASDI) tax will experience an upward adjustment in 2024. Specifically, it will rise from $160,200 to $168,600, reflecting an increase of $8,400. If you’re not familiarized with the concept, don’t worry, we’ll explain it next.
The Social Security Wage Base, often referred to as the Social Security Taxable Wage Base, is the maximum annual income on which you are required to pay Social Security taxes. It is a specific threshold set by the government each year to determine how much of your earnings are subject to Social Security tax. Income earned above this base is not subject to the Social Security tax.
What Is Social Security Wage Base?
This is actually simple to understand: for example, if the Social Security Wage Base is set at $168,600 for the upcoming year, and your annual income is $200,000, you would only pay Social Security taxes on the first $168,600 of your earnings. Any income over and above this base amount is exempt from Social Security tax. This base is adjusted annually to account for inflation and changes in the cost of living.
In the year 2024, the Federal Insurance Contributions Act (FICA) tax rate remains steady at 7.65% for both employers and employees, comprising 6.2% allocated for Old-Age, Survivors, and Disability Insurance (OASDI) and 1.45% designated for Medicare.
Specifically for 2024, an employer’s responsibility is to deduct and remit the following
- Social Security tax at a rate of 6.2% on the initial $168,600 of an employee’s earnings (the maximum tax liability being $10,453.20, which is calculated as 6.20% of $168,600).
- Medicare tax at a rate of 1.45% on the initial $200,000 of employee wages.
- A total Medicare tax of 2.35% (comprising the standard 1.45% Medicare tax and an additional 0.9% Medicare tax) on all employee wages exceeding $200,000. Additional information on the 0.9% supplementary Medicare tax can be found in the Payroll Guide, section 4055.
- Furthermore, it’s worth noting that Social Security and Supplemental Security Income (SSI) benefits will witness a 3.2% increase in the year 2024. The threshold for earnings required to earn a quarter of Social Security coverage is also being adjusted upwards, rising from $1,640 to $1,730.
To calculate your total FICA tax liability, you would typically add the Social Security and Medicare taxes. For self-employed individuals, the calculation may vary slightly due to the need to cover both the employee and employer portions.
Social Security’s 3.2% COLA: What You Need to Know
For 2024, the Social Security Administration has announced a 3.2% cost-of-living adjustment (COLA), a significantly smaller increase compared to the 8.7% bump seniors and other beneficiaries received this year. Despite this adjustment, experts warn that seniors and recipients might still struggle to keep pace with rising expenses due to inflation levels that have not yet returned to pre-pandemic norms.
The COLA for 2024 will result in an average monthly retirement benefit increase of approximately $50, starting in January. This will raise the typical monthly payment to $1,907 from the current year’s $1,858.