The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in 2018 will increase to $128,400. This is up from $127,200 for 2017.
The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers—one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).
There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.
For 2018, the FICA tax rate for employers is 7.65%—6.2% for OASDI and 1.45% for HI.
For 2018, an employee will pay:
a. 6.2% Social Security tax on the first $128,700 of wages (maximum tax is $7,960.80 [6.2% of $128,400]), plus
b. 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
c. 2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return). (Code Sec. 3101(b)(2))
RIA illustration On a salary of $128,400 (or more), an employee and his employer each will pay $7,960.80 in Social Security tax in 2018.
For 2018, the self-employment tax imposed on self-employed people is:
- 12.4% OASDI on the first $128,400 of self-employment income, for a maximum tax of $15,921.60 (12.40% of $128,400); plus
- 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a separate return), (Code Sec. 1401(a), Code Sec. 1401(b)), plus
- 3.8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return). (Code Sec. 1401(b)(2))
RIA illustration A self-employed person with at least $128,400 in net self-employment earnings will pay $15,921.60 for the Social Security part of the self-employment tax in 2018.
RIA observation: Self-employed workers deduct half of their self-employment tax above-the-line in arriving at adjusted gross income.
References: For FICA tax, see FTC 2d/FIN ¶ H-4545; United States Tax Reporter ¶ 31,114.