Taxable Wage Base: What It Is and How It Works

Key takeaways

• The taxable wage base is the maximum annual earned income subject to Social Security tax (also called the Social Security wage base).
• Social Security tax is 12.4% of earnings (6.2% paid by the employee, 6.2% by the employer). The Medicare portion (2.9% total; 1.45% each) has no wage limit.
• The Social Security wage base was $160,200 in 2023 and $168,600 in 2024.
• Self-employed people pay both halves of Social Security and Medicare tax (typically 15.3% total) but may deduct half of that tax on their income tax return.
• Some state unemployment taxes also use a taxable wage base; the limit varies by state.

What is the taxable wage base?

The taxable wage base is the maximum amount of earned income on which payroll taxes such as Social Security are assessed in a calendar year. Earnings above that limit are not subject to the Social Security portion of payroll tax.

How Social Security and Medicare taxes are applied

• Social Security tax: 12.4% total (6.2% employee + 6.2% employer). Applied only to earnings up to the taxable wage base.
• Medicare tax: 2.9% total (1.45% employee + 1.45% employer). No wage cap — Medicare tax applies to all earned income.
• Employers withhold the employee portion and remit both employer and employee shares to the IRS.

The Social Security wage base adjusts periodically based on national wage trends. For example:
* 2023 wage base: $160,200
* 2024 wage base: $168,600

Reporting and excess wages

Employers report Social Security–taxable wages on the W-2:
* Box 3 — Social security wages (amount subject to Social Security tax)
* Box 4 — Social Security tax withheld

If an employee has wages withheld in excess of the correct taxable base (for example, multiple employers in a year), excess Social Security withholding can be claimed on the individual tax return.

Self-employed individuals

Self-employed taxpayers pay both the employer and employee portions of Social Security and Medicare tax (the self-employment tax). It is calculated on net self-employment earnings; taxpayers may deduct one-half of the self-employment tax when computing adjusted gross income.

Taxable wage base and unemployment insurance

Many state unemployment insurance (UI) programs use their own taxable wage bases to calculate state unemployment taxes; those limits vary widely by state and year. Examples of 2023 UI taxable wage bases in selected states:
* Alaska: $47,100
* California: $7,000
* Florida: $7,000
* Kentucky: $11,100
* Nevada: $40,100
* New York: $12,300
* Ohio: $9,000
* Pennsylvania: $10,000
* Wyoming: $29,100

State UI wage bases are adjusted by each state and may change annually or less frequently.

Common exemptions from the taxable wage base

Certain types of payments are exempt from the Social Security taxable wage base (fully or within limits). Typical exemptions include:
* Payments to partners in a partnership
* Workers’ compensation benefits
* Certain payments to family members who are minors and other specific family-employee arrangements
* Some life insurance benefits and business travel reimbursements
* Certain dependent-care assistance, education assistance, and retirement-planning services
* Payments to some non-employees
* Tips under $20 per month

Examples

Using the 2024 Social Security wage base ($168,600):
* If Rob earns $85,000: Social Security tax withheld from Rob = 6.2% × $85,000 = $5,270.
* If Sue earns $175,000: Social Security tax is only applied up to $168,600, so Sue’s employee contribution = 6.2% × $168,600 = $10,453.20. Earnings above $168,600 are not subject to the 6.2% Social Security tax (Medicare tax still applies to all earnings).

FICA explained

FICA (Federal Insurance Contributions Act) refers to payroll taxes for Social Security and Medicare. The employee’s share is 7.65% of gross pay (6.2% Social Security + 1.45% Medicare); the employer matches that amount. Together, the total FICA contribution is 15.3% of wages (before accounting for wage caps).

Are Social Security benefits taxable?

Yes—Social Security benefits are considered unearned income and can be subject to federal income tax depending on your combined income:
* Up to 50% of benefits may be taxable if combined income exceeds $25,000 for single filers ($32,000 for joint filers).
* Up to 85% of benefits may be taxable if combined income exceeds $34,000 for single filers ($44,000 for joint filers).

Whether benefits are taxable depends on the taxpayer’s total income, including half of the Social Security benefit, other income, and tax-exempt interest.

When Social Security benefits might be tax-free

If Social Security benefits are your only source of income and your combined income falls below the thresholds above (e.g., under $25,000 for a single filer), your benefits may not be taxable. Reaching full retirement age does not automatically exempt benefits from taxation; taxability depends on total income.

Bottom line

The taxable wage base limits how much of an individual’s earnings are subject to Social Security tax in a year. Because the wage base changes periodically, check current-year limits when estimating payroll tax liabilities. Remember that Medicare tax has no wage cap, and self-employed taxpayers are responsible for the full Social Security and Medicare tax burden, with a deduction available for half of it on their income tax return.