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The Social Security Wage Base Has Been Increased for 2021

On October 13th, The Social Security Administration (SSA) announced that the social security wage base will be increased to $142,800 In 2021, up from $137,000 in 2020 – an increase of $5,150. (as detailed in the SSA Fact Sheet).

Much like prior years, there is no limit to the wages that are subject to the Medicare tax. Therefore, all covered wages are still subject to the 1.45% tax. As in 2020, wages paid more than $200,000 in 2021 will be subject to an extra 0.9% Medicare tax that will be withheld only from employee’s wages. Employers will not be paying the extra tax.

The Federal Insurance Contribution (FICA) tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2021 up to the social security wage base. The maximum social security tax employees and employers will each pay in 2021 is $8,853.60- an increase of $316.20 from $8,537.40 in 2020.

The social security wage base for self-employed individuals in 2021 will also be $142,800. There is no limit on covered self-employment income that will be subject to the Medicare tax. The self-employment tax rate will be 15.3% (combined social security tax rate of 12.4% and Medicare tax rate of 2.9%) up to the social security wage base. In 2021, the maximum social security tax for a self-employed individual will be $17,707.20.

The FICA coverage threshold for domestic and election workers has changed as well. The threshold for coverage under social security and Medicare for domestic employees (i.e., the “Nanny tax”) will be $2,300 in 2021, up from $2,200 in 2020. The coverage threshold for election workers will be $2,000 in 2021, up from $1,900 in 2020.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.