The Social Security Administration (SSA) has announced that the wage base for computing the Social Security tax (OASDI) in 2021 will increase to $142,800. This is up from $137,700 for 2020. In addition, beneficiaries of Social Security and Supplemental Security Income (SSI) will receive a 1.3% cost of living adjustment for 2021.
Background. 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 2021, the FICA tax rate for employers is 7.65%—6.2% for OASDI and 1.45% for HI (the same as in 2020).
2021 updates. For 2021, an employee will pay:
- 6.2% Social Security tax on the first $142,800 of wages (maximum tax is $8,853.60 [6.2% of $142,800]), plus
- 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
- 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))
For 2021, the self-employment tax imposed on self-employed people is:
- 12.4% OASDI on the first $142,800 of self-employment income, for a maximum tax of $17,707.20 (12.4% of $142,800); 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)).
In addition, the SSA announced that beneficiaries of Social Security and SSI (designed to help aged, blind, and disabled people, who have little or no income) will receive a 1.3% cost of living adjustment (COLA) for 2021.
References: For FICA tax, see FTC 2d/FIN ¶ H-4545.
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