One of the many taxes that employers must pay is the Social Security tax. Employers and employees both contribute, but it is a little different than other taxes. That’s because there is a limit to the amount that needs to be contributed annually. Commonly known as the wage base, this limit is updated each year and represents the maximum amount of earnings that are considered to be taxable. This means that once the base is reached, employers are no longer required to withhold Medicare tax from their employees’ hard-earned wages. Additionally, the employer is no longer required to contribute additional taxes.
Though Social Security was adopted over 70 years ago, not all employers are familiar with how the wage base works or what the taxes are used for. So, in this guide, we’ll define what the wage base is, what employers should know about Social Security tax, and explain how the calculations work.
Understanding the Social Security Wage base is worthwhile
Being an employer comes with many responsibilities, and withholding the appropriate amount of taxes — including Social Security tax — is one of those to-dos that comes with the territory. Because the wage base changes annually, communicating those changes to your employees in a timely fashion can prevent confusion (and keep your team up to date).
Good luck as you continue to grow your business and keep tabs on all the different taxes employers are responsible for.
Please note all material in this article is for educational purposes only and does not constitute tax or legal advice. You should always contact a qualified tax, legal or financial professional, in your area for comprehensive tax or legal advice.