Will you pay more Social Security Tax in 2020?

Social Security Wage Cap and Benefit Amounts Increase for 2020

For 2020, the Social Security wage cap will be $137,700, which increased by $4,800 from $132,900 in 2019, and social security and Supplemental Security Income (SSI) benefits will increase by 1.6 percent for cost-of-living adjustment.

Wage Cap for Social Security Tax

The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

  1. a 6.2 percent social security tax;
  2. a 1.45 percent Medicare tax.

 For self-employed workers, the self-employment tax is 15.3 percent, consisting of:

  1. a 12.4 percent social security tax;
  2. a 2.9 percent Medicare tax.

For 2020, the wage base is $137,700. Thus, Social Security Tax only applies to the taxpayer’s first $137,700 in wages or net earnings from self-employment and not on earnings that exceed $137,700. There is no wage cap for Medicare tax.

Maximum Social Security Tax for 2020

For workers who earn $137,700 or more in 2020:

  • an employee will pay a total of $8,537.40 in social security tax ($137,700 x 6.2 percent);
  • the employer will pay the same amount; and
  • a self-employed worker will pay a total of $17,074.80 in social security tax ($137,700 x 12.4 percent).

Additional Medicare Tax

Higher-income workers may have to pay a 0.9-percent Additional Medicare tax. This tax applies to wages and self-employment income that exceed $250,000 for married taxpayers who file a joint return, $125,000 for married taxpayers who file separate returns, and $200,000 for other taxpayers.

The annual wage cap does not affect the Additional Medicare tax.

How can this help me save on taxes?

Have you ever asked yourself if it’s time to have your Disregarded Entity taxed as an S-Corp? Does your income level fall within the social security base? If so, removing the self-employment tax on some of your income can lead to significant savings. Read more about it in the WFFA CPA blog post published in May 2019.