You may not need to pay Social Security tax on all of your earnings if you have a high salary. Workers pay into the Social Security system until their income reaches the Social Security tax limit for that year. In 2023, the Social Security taxable maximum is $160,200. Earnings above this amount are not subject to Social Security tax or factored into Social Security payments in retirement.
What Is the Social Security Tax Limit?
The Social Security tax limit is the maximum amount of earnings subject to Social Security tax. The Social Security taxable maximum is $160,200 in 2023. Workers pay a 6.2% Social Security tax on their earnings until they reach $160,200 in earnings for the year.
When Do You Stop Paying Into Social Security?
Most workers pay 6.2% of their earnings into the Social Security system each year, and employers match this amount. Self-employed workers contribute 12.4% of their paychecks to Social Security. However, high earners only pay into the Social Security system until their pay reaches the Social Security taxable maximum, which is $160,200 in 2023.
Earnings over $160,200 are not taxed by Social Security or used to calculate future Social Security payments. “Once you reach the maximum taxable earnings, withholdings from your employer will discontinue, resulting in a higher paycheck,” says Mike Biggica, a certified financial planner and founder of Pixel Financial Planning in San Francisco. “Your employer payroll department tracks this maximum and will discontinue withholding for Social Security.”
What Is the Maximum Amount of Social Security Tax?
An individual who earns $160,200 or more in 2023 contributes $9,932.40 to Social Security, and his or her employer contributes a matching amount. Self-employed individuals who earn more than the taxable maximum must contribute $19,864.80 to Social Security in 2023.
“At the end of the year, make sure that the appropriate amount was taken out,” says Bradley Clark, a certified financial planner and founder of Clark Asset Management in Andover, Massachusetts. “Make sure that you don’t overpay either though an employer error or multiple jobs.”
How Has the Social Security Tax Limit Changed Over Time?
The Social Security taxable maximum is adjusted each year to keep up with changes in average wages. The 2023 tax limit is $13,200 more than the 2022 taxable maximum of $147,000 and $53,400 higher than the 2010 limit of $106,800. The taxable maximum was just $76,200 in 2000 and $51,300 in 1990.
What Happens When Your Earnings Exceed the Taxable Maximum?
After your earnings exceed the taxable maximum for that year at a given job, Social Security taxes will stop being withheld and you will notice a bump in your paychecks. “Once you bump up against the limit, then the net amount of your paycheck just increases,” Clark says. “There’s no more Social Security tax that is deducted.”
If you earn more than the taxable maximum through multiple jobs, each of your employers must withhold Social Security taxes from your wages until you exceed the tax limit at that individual job. However, when you file your tax return, you can claim a refund for Social Security taxes withheld in excess of the maximum amount for that year.
“If you have multiple employers or change jobs during the year, there is a potential for over-withholding of Social Security,” says Ken Cornutt, a certified financial planner and founder of Westside Financial in Los Angeles. “You can claim a refund from the IRS if too much has been withheld throughout the year.”
Is There a Medicare Tax Limit?
While there’s a cap on the earnings that are subject to the Social Security tax, there is no limit on the Medicare tax. All covered wages are subject to a 1.45% Medicare tax that is matched by employers. There is also an additional 0.9% Medicare tax on wages in excess of $200,000 in a calendar year, which is not matched by employers.
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Update 01/17/23: This story was published at an earlier date and has been updated with new information.