The Social Security tax, withheld from each paycheck, stops once your income reaches a certain amount. That is due to the Social Security tax limit or "wage base," which is the maximum amount of earnings subject to Social Security tax. These taxes fund the Social Security program, which provides retirement, disability, and survivor benefits to eligible recipients.
Last fall, along with a 3.2% cost-of-living (COLA) increase, the Social Security Administration (SSA) announced a 5.2% increase in the tax limit for 2024, leading to higher taxes for some wealthy taxpayers this year.
Note: On October 10, the SSA announced a 2.5% COLA for 2025 and the 2025 Social Security tax limit.
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2024 Social Security tax limit increase
For 2024, the Social Security tax limit is $168,600. (Last year, the tax limit was $160,200. So, if you earned more than $160,200 this last year, you didn't have to pay the Social Security payroll tax on the amount that exceeds that limit.) That can result in considerable tax savings for those who earn more than the wage base.
Let's calculate the savings for someone whose salary exceeds this limit by $10,000 for 2024.
Salary: $168,600 + $10,000 = $178,600
Without the wage base limit, the tax would be about $11,073 (178,600 x 6.2%).
With the wage base limit, the tax would be about $10,453. (Tax on wage base: $168,600 x 6.2% = $10,453.20).
Savings calculation:
Savings = $11,073.20 (tax without limit) - $10,453.20 (tax with limit) = $620
So, an employee whose salary exceeds the Social Security tax limit by $10,000 would save $620 in Social Security taxes.
On the other hand, someone who earns wages exceeding the base by $30,000 would receive a $1,860 tax break. (The more you make over the tax limit, the more your Social Security tax savings.)
Note: This savings applies only to the Social Security portion of FICA taxes. The employee would still pay the 1.45% Medicare tax on their entire salary, as there is no wage base limit for Medicare taxes.
Also, for high-income earners, there's an additional Medicare tax of 0.9% on earnings above $200,000 for single filers or $250,000 for married couples filing jointly.
However, the Social Security tax limit increases yearly as the national average wage index increases. When that happens, almost every year, more income is subject to the Social Security tax.
How much are Social Security taxes?
The tax rate for an employee's portion of the Social Security tax is 6.2%.
- Your employer also pays 6.2% on any taxable wages.
- Self-employed individuals pay the full 12.4%. However, it’s worth noting if you're self-employed, you can deduct the employer-equivalent portion of that amount.
Over the past five years or so, the Social Security tax limit has increased by an average of about $3,960 a year.
However, for 2024, the tax limit went from $160,200 to $168,600, an increase of $8,400 from the previous year. That is significantly less than the $13,200 increase from 2022 to 2023, the largest recorded increase.
As a result, the maximum Social Security tax jumped from $9,932 to $10,453.
So, people making over $168,600 in 2024 will pay about $521 more in Social Security taxes this year than they would have paid if the tax limit remained at $160,200.
COLA increase for Social Security
Along with the wage tax base rate, the SSA announced the 2024 Social Security COLA increase. As Kiplinger reported, more than 66 million retirees receiving Social Security checks will see their monthly government payments rise 3.2% this year.
The 2025 COLA is 2.5%. On average, according to the SSA, Social Security retirement monthly benefits for about 68 million people are expected to grow by more than $50 beginning January 2025.
Who is exempt from Social Security tax?
Some people don’t have to pay Social Security taxes. (Exemptions from Social Security taxes may be available if certain requirements are met.) Some examples are listed below, although other exemptions may be available.
- Certain members of religious groups or organizations
- Students and certain young (minor) workers
- Employees of foreign governments
- People the IRS considers to be “Non-resident aliens”
Tax limit for 2025
Each year, the Board of Trustees for the Social Security Trust Fund publishes a report on the financial status of the Social Security program. The recent report, released May 6 provides tax limit projections through 2033.
The board projected that the 2025 tax limit would rise to $174,900. However, the official announcement of the 2025 limit puts that number at $176,100.
For more information, see Kiplinger's report: Social Security Tax Limit Jumps 4.4% for 2025.
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