Key Takeaways:
- The Social Security tax limit refers to the maximum amount of earnings that are subject to Social Security tax.
- For 2024, the Social Security tax limit is $168,600. Workers earning less than this limit pay a 6.2% tax on their earnings.
- Individuals with multiple income sources will want to track their earnings and communicate with employers to ensure withholding adjustments are correct.
- While there is a cap on earnings subject to Social Security tax, there is no limit on Medicare tax.
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. Earnings above this amount are not subject to Social Security tax or factored into Social Security payments in retirement.
As you consider your income and Social Security tax, it can be helpful to know the following:
- What is the Social Security tax limit?
- When do you stop paying into the Social Security system?
- What is the maximum amount of Social Security tax?
- How has the Social Security tax limit changed over time?
- What happens when your earnings exceed the taxable maximum?
- Is there a Medicare tax limit?
What Is the Social Security Tax Limit?
The Social Security tax limit is the maximum amount of earnings subject to Social Security tax. Workers who earn less than the limit will pay a 6.2% tax on their earnings. The Social Security tax limit is set each year. In 2023, the limit was $160,200. For 2024, the Social Security tax limit is $168,600.
To know if you exceed the limit, check your overall earnings. “Thoroughly review all sources of income, including wages, self-employment earnings and other taxable compensation,” said Joseph Carpenito, a financial advisor at Materetsky Financial Group in Boynton Beach, Florida, in an email. “Understanding the composition of your income is crucial in managing your Social Security tax liability.”
When Do You Stop Paying Into the Social Security System?
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 $168,600 in 2024.
“Consider utilizing withholding adjustments by completing a Form W-4 with each employer,” Carpenito said. “This allows you to control the amount withheld for Social Security tax. However, exercise caution to avoid overwithholding, which could result in a tax bill at the end of the year.”
What Is the Maximum Amount of Social Security Tax?
An individual who earns $168,600 or more in 2024 contributes $10,453.20 to Social Security and his or her employer contributes a matching amount. Self-employed individuals who earn more than the taxable maximum must contribute $20,906.40 to Social Security in 2024.
“Stay vigilant about your income levels throughout the year,” said Dane Janas, a tax accountant and owner of Moravia Advisors in Bethlehem, Pennsylvania, in an email. “Regularly assess your earnings to ensure you remain within the Social Security tax limit. Adjustments to withholding may be necessary if you are on track to surpass the limit.”
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 2024 tax limit is $8,400 more than the 2023 taxable maximum of $160,200 and $61,800 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 each year at a given job, Social Security taxes will stop being withheld and you will notice a bump in your paychecks. 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. When you file your tax return, however, you can claim a refund for Social Security taxes withheld in excess of the maximum amount for that year.
“Communication with all employers is paramount, especially for those with multiple sources of income,” Janas said. “Provide accurate and up-to-date information on cumulative earnings to enable each employer to adjust withholding appropriately.” Doing so could lower the risk of overpaying.
However, if you pay too much in taxes, you can take additional steps. “If you have overpaid, you can claim a credit against your income tax when you file your income tax return,” said JP Geisbauer, a certified financial planner at Centerpoint Financial Management in Irvine, California.
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. The Medicare tax for self-employed persons is 2.9%.
