For the Old Age, Survivors and Disability Insurance (OASDI) tax or Social Security tax in the United States, the SOCIAL SECURITY WAGE BASE (SSWB) is the maximum earned gross income or upper threshold on which a wage earner's Social Security tax may be imposed. The Social Security tax is one component of the Federal Insurance Contributions Act tax (FICA) and Self-employment tax , the other component being the Medicare tax. It is also the maximum amount of covered wages that are taken into account when average earnings are calculated in order to determine a worker's Social Security benefit .
In 2017, the
Social Security Wage Base
* 1 Details
* 2 Historical data
* 2.1 Employee Contribution changes in 2011
* 3 Use in pension plans
* 3.1 Defined contribution plans * 3.2 Defined benefit plans
* 4 Notes * 5 External links
The Congressional Budget Office considers the employer share of taxes to be passed on to employees in the form of lower wages that would otherwise be paid, and counts them as part of the employees’ tax burden. Self-employed individuals pay the entire amount of applicable tax.
When an employee works for several different companies during a tax year, his or her Social Security deductions could exceed the cap, because each employer may not know how much the employee has already paid in Social Security tax in other jobs. The Social Security tax coverage will be calculated on his or her personal return, and any excess is applied towards his or her Federal taxes. For example, in 2017 an employee works two jobs (either concurrently or consecutively) paying $70,000 each. Since each employer calculates the social security taxes independently, each employer will withhold 6.2% of the $70,000 employee’s salary, or $4,340, for a grand total of $8,680 -- which exceeds the cap of $7,886.40 by $739.60. The over-payment would be entered on the applicable line of Form 1040 and, assuming the employee did not owe any other Federal taxes, would be refunded to the employee. The employers who each paid $4,340 will not get a refund, since they are not aware that the employee overpaid in aggregate for the year. The government keeps the $818.40 overage. Even if the employers become aware of the overpayment, there is no method to claim the overpayment.
Several occupations are exempted from the current cap with a far lower cap, such as food service employees and domestic help employees. For the year 2014, the cap was $6,500 in wages.
Since 2000, the SSWB has been:
YEAR WAGE BASE INCREASE MAXIMUM SOCIAL SECURITY EMPLOYEE SHARE MAXIMUM SOCIAL SECURITY EMPLOYER SHARE MAXIMUM TOTAL CONTRIBUTION TO SOCIAL SECURITY
2017 $127,200 7.3% $7,886.40** $7,886.40 $15,772.80
2016 $118,500 0.0% $7,347.00** $7,347.00 $14,694.00
2015 $118,500 1.3% $7,347.00** $7,347.00 $14,694.00
2014 $117,000 2.9% $7,254.00** $7,254.00 $14,508.00
2013 $113,700 3.3% $7,049.40** $7,049.40 $14,098.80
2012 $110,100 3.1% $4,624.20* $6,826.20 $11,450.40
2011 $106,800 0.0% $4,485.60* $6,621.60 $11,107.20
2010 $106,800 0.0% $6,621.60 $6,621.60 $13,243.20
2009 $106,800 4.7% $6,621.60 $6,621.60 $13,243.20
2008 $102,000 4.6% $6,324.00 $6,324.00 $12,648.00
2007 $97,500 3.5% $6,045.00 $6,045.00 $12,090.00
2006 $94,200 4.7% $5,840.40 $5,840.40 $11,680.80
2005 $90,000 2.4% $5,580.00 $5,580.00 $11,160.00
2004 $87,900 1.0% $5,449.80 $5,449.80 $10,899.60
2003 $87,000 2.5% $5,394.00 $5,394.00 $10,788.00
2002 $84,900 5.6% $5,263.80 $5,263.80 $10,527.60
2001 $80,400 5.5% $4,984.80 $4,984.80 $9,969.60
$4,724.40 $4,724.40 $9,448.80
(*) The maximum employee share in 2011 is reduced to $4,485.60, but the maximum employer share remains at $6,621.60. The maximum employee share in 2012 is reduced to $4,624.20, but the maximum employer share remains at $6,826.20. Effectively, this was a 4.2% rate charged to the employee, and 6.2% rate to the employer. This resulted in an approximately 40/60 split but reduced the total contribution. See here for a complete historical list of the Social Security Wage Base.
(**) Since 1990, the employer only the employee's tax rate changes. This is reflected in the above table, showing the reduction from $6,621.60 to $4,485.60.
USE IN PENSION PLANS
Because taxes and benefits are based only on earnings up to the SSWB, pension plans can base contributions and or benefits in greater degree on earnings above the SSWB (excess plans) or reduce benefits or contributions below the SSWB (offset plans).
The pension compensation nondiscrimination laws (Internal Revenue Code Section 401(a)(4)) require that qualified pension plans not discriminate in benefits, rights and features in favor of highly compensated employees (in 2007, the threshold is $100K of 2006 gross pay including bonuses and overtime). Because Social Security provides a progressive benefit formula and stops taxation at the SSWB, pension plans may integrate benefits or contributions according to a wage base, frequently at a fraction (e.g. 50%) of the SSWB.
DEFINED CONTRIBUTION PLANS
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. If the integration base for such offset plans is identical to the SSWB, then the reduction could be up to 5.7%.
DEFINED BENEFIT PLANS
For defined benefit plans the integration base is a career average of the SSWB for each year of the worker's career, which in pension law is called "covered compensation" base. Under pension law, the SSWB may not be projected to increase in the future so a new hire's covered compensation base would contain all future years at the current year's SSWB. Excess and offset plans also exist for defined-benefit plans.
* ^ Publication 15, Employer's Tax Guide (Circular E) (April. 2017), p. 23, Internal Revenue Service, U.S. Dep't of the Treasury. * ^ "Historical Effective Federal Tax Rates: 1979 to 2004" (PDF). Congressional Budget Office. December 2006. Retrieved 2007-08-20.