Social Security Tax Rates: Changes You Should Know About
Social Security taxes are something that every American worker must pay. These taxes are what fund the Social Security benefits that retired Americans receive. For many workers, Social Security taxes make up a significant portion of their paycheck. In this article, we will discuss the changes that have been made to Social Security tax rates in recent years that you should be aware of.
Social Security tax rates are set by the federal government and are based on earnings. For 2021, the Social Security tax rate is 12.4% of wages up to a certain limit. This limit changes each year and is known as the Social Security wage base. For 2021, the Social Security wage base is $142,800. This means that any earnings above $142,800 are not subject to Social Security taxes.
The Social Security tax rate is split evenly between employers and employees. This means that employers are responsible for paying 6.2% of their employees' earnings towards Social Security taxes, while employees pay the remaining 6.2%.
One change that has occurred in recent years is the increase in the Social Security wage base. In 2020, the Social Security wage base was $137,700. This means that in 2021, workers will be paying Social Security taxes on an additional $5,100 of earnings. This increase may seem small, but it can add up over time, especially for high earners.
Another change that has occurred in recent years is the increase in the full retirement age. The full retirement age is the age at which a worker can receive their full Social Security benefits. For many years, the full retirement age was 65. However, in 1983, Congress passed legislation that gradually increased the full retirement age to 67 for workers born in 1960 or later.
This increase in the full retirement age has several implications for Social Security tax rates. First, it means that workers will need to work longer before they can receive their full benefits. This may make it more difficult for some workers to retire at their desired age. Additionally, it means that workers will be paying Social Security taxes for a longer period of time, which could have an impact on their take-home pay.
One final change that has occurred in recent years is the elimination of the Social Security payroll tax holiday. In 2011 and 2012, Congress passed legislation that lowered the Social Security tax rate for employees from 6.2% to 4.2%. This was meant to stimulate the economy by putting more money in workers' pockets. However, the payroll tax holiday was not made permanent and expired at the end of 2012. This means that workers are now paying the full 6.2% in Social Security taxes again.
In conclusion, understanding Social Security tax rates is essential for all American workers. Knowing how much you are responsible for paying and how the rates are determined is key to planning for your retirement. With the changes in Social Security tax rates that have occurred in recent years, it is more important than ever to stay informed and plan accordingly. By doing so, you can help ensure that you are able to retire comfortably and enjoy your golden years.