When we retire, most of us will collect our monthly social security checks. But for now, as a small business owner and employer, your tax dollars are needed for the Social Security Old-Age, Survivors, and Disability Insurance (OASDI) program.
If you do payroll, your employees probably have taxable wages. And that means you need to know the current wage base before you compute your payroll taxes …
Wage Base Limit for 2015
The Social Security Administration (SSA) released the 2015 contribution and benefit base amounts on October 22, 2014. With a small increase of 1.3%, the 2015 wage base limit is $118,500 (up from $117,000 in 2014).
The wage limit is based on average salaries. It is interesting to note that while the wage limit itself increased for 2015, the percent of increase is down from last year. There was a 2.9% bump in 2014, and the limit went up only 1.3% for 2015.
Employer/employee. The tax rate, on the other hand, is set according to statute. The OASDI has not changed the tax rate for 2015. The tax rate is still 6.2% from the employer, and 6.2% from the employee for social security.
Do the math. If your employee earns $118,500 or more, you and your employee will each contribute $7,347 for OASDI in 2015. In other words, the maximum you and your employees will each pay is $7,347 per tax-paying worker for social security taxes.
Taxes for Medicare, too
The FICA tax is a combination of social security (6.2%) and Medicare (1.45%) — for a grand total of 7.65% each for employers and employees. Since there is still no wage limit when it comes to the Medicare tax, the wage base limit of $118,500 does not apply to Medicare’s 1.45%.
High-income earners. Not only is there no wage base limit for Medicare, there is an additional Medicare tax under IRS regulations for high-income learners (starting at $125,000 for married filing separately). The 0.9% surcharge is paid when you file your personal tax return and does not affect payroll deductions. To find out if this regulation affects you, see the IRS’s additional Medicare tax information.
Read the article “Do I Have to Pay Self-Employment Tax?” to see how the wage base limit applies to the wages you pay to yourself. If you are subject to self-employment tax, you will pay a 12.4% social security tax rate on your self-employment income.
The wage base information is basically the same if you are self-employed, but you will be paying both the employee and the employer taxes. So …
- The wage base limit is $118,500.
- There is no wage base for Medicare taxes, and the tax rate is 2.90%.
- When you add social security (12.4%) to Medicare (2.9%), you pay a total self-employment tax of 15.3%.
- The maximum social security tax is $14,694 for a self-employed person in 2015.
Did you know?
We have covered the details about taxes and the Social Security/Medicare program. To put it in perspective, here are some “big picture” facts from the SSA about your tax dollars at work …
- In 2014, how many workers will be in the OASDI program? (165,000,000 or 94%)
- As of June 2014, what percent of the 65-and-over population are receiving SSA benefits? (88%)
- How many beneficiaries (i.e., retirees, survivors, disabled) were getting SSA benefits as of June 2014? (58,575,000)
Payroll taxes are unavoidable. Rules change with both the IRS and the SSA from one year to the next; it can be challenging to keep up! If you are handling your payroll on your own, be sure to keep up with the changes as published on the IRS and SSA websites.
You can save time by using Patriot Software’s full service payroll software. We keep the tax rates up-to-date in our online software, so you can just log on from anywhere and run payroll in three easy steps.