The Social Security Administration has announced that the earnings base for computing the Social Security tax in 2021 will increase to $142,800. This is up from $137,700 for 2020. An employee with wages up to or above this new maximum will pay $8,853.60 in tax, with the employer paying an equal amount. Self-employed individuals will pay $17,707.20 in tax.
The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers—one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).
The FICA tax rate for employers and employees is 7.65% each—6.2% for Social Security and 1.45% for Medicare. The FICA tax rate for self-employed persons is 15.3%—12.4% for Social Security and 2.90% for Medicare.
There is a 0.9% additional Medicare tax on all earnings in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return) that applies to employees and to self-employed persons.
There is no limit on the earnings subject to the Medicare tax.
For more information, please contact us at 401-831-0200.