In late 2014, an upward cost-of-living adjustment for the Social Security taxable wage limit was announced by the Social Security Administration. This announcement stated that for the 2015 calendar year, the amount of the earnings taxable for Social Security (Old Age, Survivors and Disability Insurance, or OASDI) would increase from $117,000 to $118,500. However, the employee and employer tax rate will remain unchanged at 6.2 percent.
This increase meant that the maximum Social Security tax that is payable by an employee in 2015 will be $7,347.00 – which is an increase of $93.00 from the 2014 maximum tax of $7,254.00. Employers will match the employee’s tax.
The Taxable Wage Limit
The Omnibus Budget Reconciliation Act removed the taxable wage limit in 1993 for the Medicare tax starting in 1994, and for years thereafter. Therefore, there is no maximum employee or employer contribution amount for Medicare tax for 2015. All covered wages will be subject to Medicare tax at a rate of 1.45 percent. Employers will match the employee’s tax.
As of January 2013, there is also an additional 0.9 percent bump up the Medicare tax. This affected the following taxpayers:
For the purpose of withholding, covered wages that are over $200,000 per year are taxed at a total rate of 2.35 percent (1.45 percent + 0.9 percent), regardless of a taxpayer’s filing status. The amount of the additional Medicare tax is not matched by an individual’s employer.
Depending on the amount of a person’s total taxable wages, the combined amount of his or her Medicare and Social Security tax rate would range anywhere between 7.65 percent (6.2 percent + 1.45 percent) to 8.55 percent (6.2 percent + 1.45 percent + 0.9 percent) on Medicare wages that are over $200,000 per year. The combined employer tax rate remains at 7.65 percent.
Wages Subject to the Additional Medicare Tax
Individuals owe Additional Medicare Tax on wages, compensation, and self-employment income (and that of the individual’s spouse, if married and filing jointly) that exceed the applicable threshold for the individual’s filing status. Medicare wages and self-employment income are combined to determine if income exceeds the threshold. A self-employment loss is not considered for purposes of this tax.
All wages that are currently subject to the Medicare Tax are subject to the Additional Medicare Tax, if they are paid in excess of the applicable threshold for an individual’s filing status. Also, all Railroad Retirement Tax Act compensation that is currently subject to Medicare Tax is also subject to the Additional Medicare Tax if it is paid in excess to the applicable threshold for an individual’s filing status.