19 Dec Social Security Wage Base Limit

The social security wage base limit will increase to $137,700 for 2020; which means that is the maximum amount of wages an employee and an employer will each pay social security taxes on. The social security tax rate will remain at 6.2% for 2020. Therefore, the maximum social security tax an employee and an employer will each pay in 2020 is $8,537.40. 

The taxable maximum limit changes each year based on the changes in the national wage index. The change ensures the wage base limit is in alignment with wage growth over the years. If your earnings exceed the maximum amount in any given year, you are only taxed on the maximum amount allowable. In the event you have multiple jobs, each employer must continue to withhold Social Security taxes from your wages. Unfortunately, this may cause the amount withheld to exceed the maximum amount. Don’t fret because there’s always a light at the end of the tunnel! When you file your federal tax return, a refund can be claimed from the IRS for the Social Security taxes withheld that exceeded the maximum amount.

The wage base limit also applies to the annual limit on the amount of wages used to determine your Social Security benefits. In addition to the limit, a formula is used that calculates the average amount earned in the 35 years in which you earned the most money.

It’s also important to know that the age of retirement will affect the Social Security benefits you receive. If you decide to claim benefits prior to your full retirement age, the monthly amount you receive will be decreased. If you can hold out and claim your benefits after your full retirement age, the monthly amount you receive will be increased, up to age 70.

Understanding how Social Security works and what your options are, will help you establish a solid plan for your retirement future.