As we approach 2025, changes are coming to the Social Security wage base. In October, the Social Security Administration announced that the wage base for computing Social Security tax will increase to $176,100, up from $168,600 in 2024. Earnings over this limit won’t be subject to Social Security tax.
If your business employs high earners, you may need to budget for additional payroll costs.
Social Security overview
The Federal Insurance Contributions Act (FICA) mandates two primary taxes for employers, employees, and self-employed individuals. These are the Social Security tax, covering Old Age, Survivors, and Disability Insurance, and the Medicare tax, which funds Hospital Insurance.
While the Social Security tax applies to earnings up to a specific limit, the Medicare tax has no cap. In 2025, the FICA rate for employers will remain at 7.65% – comprising 6.2% for Social Security and 1.45% for Medicare, unchanged from 2024.
Updates for 2025
In 2025, employees will be subject to the following:
- 6.2% Social Security tax on wages up to $176,100, with a maximum of $10,918.20 in Social Security tax, plus
- 1.45% Medicare tax on wages up to $200,000 ($250,000 for joint filers and $125,000 for married taxpayers filing separately)
- 2.35% Medicare tax (1.45% regular Medicare tax plus an additional 0.9% Medicare tax) on wages above $200,000 ($250,000 for joint filers and $125,000 for married taxpayers filing separately)
The self-employment tax imposed will be:
- 12.4% Social Security tax on income up to $176,100, with a maximum Social Security tax of $21,836.40, plus
- 2.90% Medicare tax on the first $200,000 of income ($250,000 for joint filers and $125,000 for married individuals filing separately), plus
- 3.8% Medicare tax (2.9% regular Medicare plus an additional 0.9%) on income exceeding $200,000 ($250,000 for joint filers and $125,000 for separate filers)
Evolution of the Social Security wage base
The Social Security payroll tax, introduced in 1937 with a $3,000 wage base, remained at this level until 1950. As the U.S. economy grew and wages began to rise, the wage base was periodically increased to support the Social Security system. In 1972 Congress passed legislation that would link increases in the wage base (and hence Social Security benefits) to the Consumer Price Index. It reached $25,900 in 1980, rose to $76,200 in 2000, and was $137,700 by 2020. Adjustments since the 1972 amendment have consistently reflected economic growth and inflation.
Employees with multiple jobs
Employees with more than one employer may have questions about Social Security tax withholding across different jobs. Each employer is legally required to withhold Social Security taxes, even if combined withholdings exceed the maximum tax limit. However, when filing their tax returns, employees can receive credit for any overpaid Social Security tax.
If you have questions about payroll tax filing or payments – or want to ensure your business stays compliant – contact your advisor. If you are not a client and would like to learn more, let’s talk.
