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Topic No. 751 Social Security and Medicare Withholding Rates. FICA & SECA Tax Rates. Maximum Social Security Withholding Amounts

Most people who work pay for their social security through their employer. These payments or taxes are deducted from their paycheck, matching the contribution, sends taxes to the IRS, and reports wages to social security. However, self-employed people must do it on their own. If you have a business or profession that you run by yourself or as a partner, you must make these payments by yourself. Your earnings are reported when you file your federal income tax.

The updated withholding rates for 2018 were revised in December 2017 to replace the amount that was set by the Social Security Administration. This was based in the updated wage data, which stood at $128,400. The wage base had to be recalculated because a good deal of salary data was not incorporated in the original calculations. The updated withholding rates for 2018 will see more than 12 million workers of the estimated 175 million workers pay more because of the increase in the maximum taxable amount that started in January 2018.


The adjustment of the taxable earnings anchors of the estimate made by the government concerning the inflation-adjusted growth. This year’s jump falls under the 0.95$ is smaller compared to the 7.3% increase that was experienced in 2017. This was occasioned by the unchanged taxable maximum law that was there in 2016 because there was no cost-of-living increase in social benefits. With the updated withholding rates for 2018, the people whose compensation goes beyond $127,200 maximum will have a decreased take-home pay if there is no annual raise in salary that will make up for the payroll tax increase.

So What Is Social Security Withholding? 

Employers, employees, and self-employed people have to remit Social security tax. It caters for the expense of benefits for older citizens, those who survive, and disabled persons. Social security excise is remitted every year, and the withholding rate formula pegs on the state of inflation

Demystifying The Social Security Benefit And The Social Security Withholding 

People tend to confuse the social security benefit and social security withholding. Simply put, social security benefit is time-honored whereas social security withholding is subtracted from salary. The maximum benefit is the utmost benefit you can receive from your social security every month and anchors on an individual’s past earnings and the age of retirement.

Image result for employer withholding taxes illustrationsWhat If I Am An Employer Or Employee? 

On the other hand, the maximum withholding is the highest quantity is taken from a worker’s pay for the social security fund. Social security taxes withholding uses a maximum sum that is subject to change every year. As of 2018, the maximum social security maximum wage stands at $128,700. However, there is no maximum social security tax payable that any employer can part with, late filing and penalties involved.

What Are The Penalties For Not Filing In Time?

There are timelines set for the filing of social security earning and getting credit for your future social security benefits. You have three years, three months and 15 days after the end of the calendar year in which you earn your income. If you can report your social security earnings within this time, you gain credit for your future social security benefits. Failure to report them within this time does not accumulate any credits for your social security for the unreported income. If you fail to sign up for Medicare in time, it can cost you.

What Are The Penalties For Not Filing In Time

If you do not register for five years, you stand you face a 50% part b penalty. Every ten percent applies to every year of that delay. This penalty is permanent and can amount to thousands of dollars, which is a headache you do not need to have.

Medicare Tax

It is important to understand the rules that pertain to the filing of your Medicare tax. Enrollment starts at 65 years of age for those seniors who have filed for social security benefits. However, a growing number of older Americans are working longer and delaying these filings. Medicare can be applied through SSA’s office or online. You will also get to know what are the penalties for not filing in time.

Various Social Security Withholding Rates 

The Federal Insurance Contributions Act has taxes, which are composed of old age, survivors and disability insurance. They are also referred to as the social security taxes, the hospital insurance tax popularly known as Medicare taxes. All of these taxes have different rates that even the employers need to know.

What If I Am An Employer, What Do I Need To Know? 

  • Social security and Medicare withholding rates- As of now, the social security tax rate stands at 6.2% for the employer, which also applies to the employee. This adds up to 12.4%. Currently, the Medicare rate stands at 1.45% for the employer and the same percentage for the employee, making a 2.9% in total.
  •  Additional Medicare tax withholding rate- This applies to a person’s medicate wages that surpass the threshold amount that anchors on the tiling status of the taxpayer.

What Is Important About This Withholding Rate?

As an employer, you can withhold 0.9% Additional Medicare Tax on a person’s wages that are paying beyond $200,000 in a year, filing status notwithstanding. The employers are required to withhold Additional Medicare Tax within the pay period whose wages exceed $200,000 to an employee and continue with that trend until the end of the calendar year. When it comes to wage base limit, the maximum wage is subject to tax for that year. In 2018, the base limit is $128,400.

What is FICA?

The law requires that employers withhold a certain amount of taxes from an employees paycheck and submit it to the government through a tax system called FICA. FICA stands for Federal Insurance Contributions Act. As part of the tax payment, social security taxes are withheld. Think of Social Security as an insurance. It’s a way of providing monetary benefits upon retirement, or if one becomes disabled or for the surviving spouse or children in the event of death. They are financed by taxes due from the employee and the employer.  The payments are divided equally between the two.

How It Works

Every time an employee receives a paycheck, the payroll taxes are withheld. The employer is in charge of paying his whole measure of government taxes that are due. For every year the employee’s FICA commitment is examined they will get credit from the Social Security Administration for those wages for that year. The Medicare tax is an additional tax that is owed by the taxpayer. The Medicare program exists principally to furnish retirees with medical advantages. The Medicare tax along with the Social Security tax is what the FICA tax consists of.

Income Vs Social Security Tax

All income received is taxed by the federal government. However, based on the status you file and the amount you claim as dependents, to some degree you control how much is withheld from your paycheck. This is not so with the Social Security tax. It cannot be adjusted in any way. The government has set a fixed amount that needs to be paid and if it isn’t paid, heavy penalties will be imposed.

Current Social Security Rate

The current rate of Social Security withholding is set at 12.4 percent. The full amount of the tax is divided equally between the employer and employee with each contributing 6.2 percent. The Medicare Tax rate is set at 2.9 percent and again is equally divided between employer and employee. It is the employer’s responsibility to withhold and submit the entire amount to the government.

Social Security Limits

The tax on Social Security actually has a limit. This is called a Wage Base Limit. It is currently set at $118,000 which means that earnings over that amount are not subject to the Social Security tax. However, there is no such limit set on the Medicare tax. No matter what you earn you will have to pay the Medicare tax. Medicare tax rates are adjusted at different income levels.

Social Security Benefits

If you want to determine the amount of your Social Security benefits, you can use a tool available online. The benefits calculator will allow you to input your data and you will be able to get an estimate of what your benefits will be.

How Self-Employment Tax Affects Your Social Security Maximum 

For those of you who are self-employed, the social security maximum still affects you. Your social security maximum is capped based on the maximum profit of your company and also depending on the maximum made for that year. For instance, if you are self-employed and your schedule C net earnings stand at $125,000 in 2018, your taxation will anchor on the self-employment tax of 2018. For a person who is both employed and self-employed, the employment income is the one that comes first in consideration for the social security purpose. If the maximum falls short, then self-income has to come into play to service the deficit.