Reminder: Social Security Tax has a maximum

As I learned last year, you only pay so much Social Security Tax in a year.

This year’s maximum taxable earnings for Social Security taxes is $110,100 [1]. The rate employees pay is 4.2% [1], so:

$110,100 * 4.2% = $4,624.20 is the maximum you will pay this year.

I got pretty close to the maximum with my September paycheck, so under $100 of my October paycheck will go to this tax! And then my November and December paychecks won’t pay any at all and my last bonus for the year won’t pay any either :)

I’ve told some of my friends about this maximum and they were pleasantly surprised to figure out that their paychecks would get a little bit bigger near the end of the year, especially those with bonuses coming in near the end of the year.

We don’t know for sure what percentage of our pay will go to Social Security tax next year (4.2% or 6.2%), but we do know the maximum taxable earnings for Social Security is going to be $113,700 [1]. This means that the maximum we will each pay is between $4,775.40 and $7,049.40.

I’m really excited to have an extra little bit to throw at the mortgage over the next few months. Readers, how about you?



14 thoughts on “Reminder: Social Security Tax has a maximum

  1. I think about it more on a macro level. The payroll tax cut for US in 2012 for example gives a maximum benefit to those with higher incomes. This tax cut which expired midyear gave full benefit to those making more than $250,000.

  2. I don’t like it one bit. I abhor the concept of giving extra breaks to those at the top income levels while cutting back on services for the indigent.

    And just to clarify- it’s $110,000 if you’re single and what- $160,000 for married filing jointly?

    • I would have zero problems with paying social security tax on every dollar of income. I will happily pay more taxes to help people who need the money (Medicare, Social Security programs, etc.). I would also happily pay more in income taxes. But if the government isn’t going to make me pay some taxes on every dollar of my income, the least I can do is “save” the extra money. Medicare tax does have no income maximum.

      I *think* that it’s $110,100 for each person, that social security tax is calculated on each individual’s income, not the total. I can’t find anything official to substantiate this hypothesis though. This is a payroll tax and your employer doesn’t know how much your spouse makes, so I don’t think they can know to cut off the social security tax payments once you and your spouse have earned some combined amount. That’s just my guess though.

      • I’m going to look too, because I was relatively confident that it cut off at $160,000- but now you have me wondering what I’m thinking of.

        And I wasn’t trying to imply that you’re doing anything wrong with the break. No value judgment on what you’re doing with your money; my comment was directed at the tax scheme- not you!!

  3. It’s not an issue for me, since I’m not yet crossed the 6-figure income mark.

    I’m conflicted on SSA as a program overall: while I like the general principle behind the program, I’m not particularly thrilled about the overall implementation or what the program has grown into. When I consider what I pay into the system goes to pay for the benefits that my grandmother receives today, it keeps me from getting overly worked up from seeing the total amount that has been deducted over the year.

    My biggest fear is that I’m going to be punished in the future for saving for my retirement while people who didn’t save anything get rewarded with larger payouts.

    I’m willing to compromise and say that everyone over 50 gets full SSA benefits upon retirement, and everyone under 50 goes into a pool with any remaining money that gets paid out equally to everyone who is retired (who has meet the requirements to receive benefits). I’m fine with reduced benefits (even no benefits) provided that any determination of benefits is NOT based on the amount that people have (or have not) saved.

    Honestly, the whole current retirement system in the US is a complete train wreak that need to be completely overhauled and simplified.

    • Interesting commentary, but I try to not discuss politics. I do like the way of thinking about it that what you pay goes to pay for your grandmother’s benefits though.

  4. The Canada Pension Plan (CPP) maxes out at a certain level level of earnings, too (I think it’s called the YMPE). On the paycheque where they finally stop deducting the CPP each year, it’s a relief.

  5. Yay! More money for the mortgage. Nice work. I’m almost certain it’s $110k per person, and doesn’t go up to $160k for couples but I’m no tax expert.

    • Yay! I think that’s the case too, but I can’t even speak from personal experience since I’m not married :) That seems like a nifty trick…one person could make $200,000 and the other make $20,000 and you wouldn’t pay much in social security taxes!

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