• James D. Lynch

Maximum Social Security Tax Increases in 2021

The maximum amount of earnings subject to the Social Security payroll tax increase in 2021 to $142,800, up from $137,700 in 2020. Earnings above $142,800 will not be subject to Social Security tax. In addition, a person’s future benefit amount does not increase beyond the maximum taxable earnings limit.

Self-employed workers pay 12.4% of their net earnings into the Social Security tax until they reach the annual maximum. Employees pay half that rate (6.2%), with their employers paying the other half. So, an employee who earns $142,800 or more in 2021 will pay Social Security tax in the amount of $8,853.60, and that person’s employer will pay another $8,853.60 in Social Security tax. Self-employed workers who earn $142,800 or more in 2021 will pay $17,707.20 because they are responsible for both the employer and employee portions of the Social Security taxes.

Social Security and Medicare payroll taxes are collected together as the Federal Insurance Contributions Act (FICA) tax. There is no wage limit on Medicare taxes. In fact, employers must withhold an additional 0.9% in Medicare taxes from wages of employees who earn more than $200,000 in a calendar year.

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