The Social Security Administration recently announced that the Social Security wage base for calculating Social Security taxes will rise to $147,000 in 2022 (from $142,800 in 2021). Wages and self-employment income beyond this amount are exempt from the Social Security tax.
The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers: one for Old Age, Survivors, and Disability Insurance, or Social Security, and the other for Hospital Insurance, or Medicare.
There is a cap on the amount of compensation that is subject to the Social Security tax, but there is no cap on the amount of compensation that is due to the Medicare tax. Employers’ FICA tax rate is 7.65% in 2022, with 6.2 percent for Social Security and 1.45 percent for Medicare (the same as in 2021).
Social Security Wage Base Updates for 2022
In 2022, an employee will pay:
- 6.2% Social Security tax on the first $147,000 of wages (6.2% of $147,000 makes the maximum tax $9,114), plus
- 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
- 2.35% Medicare tax (regular 1.45% Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).
The self-employment tax that will be imposed on self-employed people in 2022 is:
- 12.4% OASDI on the first $147,000 of self-employment income, for a maximum tax of $18,228 (12.4% of $147,000); plus
- 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a return of a married individual filing separately), plus
- 3.8% (2.90% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return).
What happens if one of your employees gets a second job while working for you? Taxes would be withheld from two different employers for the employee. When the employee reaches the Social Security wage base threshold, can he or she ask you to discontinue withholding Social Security tax? Unfortunately, the answer is no. Even if the total withholding exceeds the maximum amount that can be imposed for the year, each employer is required to withhold Social Security taxes from the individual’s income. Fortunately, the employee will receive a credit for any excess withheld on his or her tax return.
We can assist
If you have any questions about the Social Security wage base or issues with payroll tax filing or payments, please contact us. We can assist you with remaining compliant.