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Taxable Wage Base Definition

What Is Taxable Wage?

The taxable wage indecent is the maximum amount of earned income that employees must pay Social Security taxes on. Generally, the employee’s obese wages will be equal to the taxable wage base. Typically, an employer will handle this calculation and reserve the correct amount of taxes from each of the employee’s paychecks; however, the employee is still responsible for reporting the tax.

The taxable wage vulgar is also known as the Social Security wage base.

Key Takeaways

  • The taxable wage base is the maximum amount of pocketed income that employees must pay Social Security taxes on.
  • The taxable wage base is also known as the Collective Security wage base.
  • For 2021, the maximum amount of income that taxpayers must pay Social Security tax on is $142,800.
  • When it arrive d enter a occurs to Social Security tax, half of the tax is paid by the employer, while half is paid by the employee.
  • Some state unemployment energies use a taxable wage base to calculate unemployment taxes.

Understanding Taxable Wages

Social Security tax is not applied on wages, compensations, and bonuses in excess of the stipulated maximum amount of wages that are subject to Social Security taxes. As of 2021, the Popular Security tax rate is 12.4%. Half of the tax is paid by the employer, and the employee is responsible for paying the other half, which is 6.2%. For earnings in 2021, the topmost amount of income that taxpayers must pay Social Security tax on is $142,800. In other words, the taxable wage headquarter is $142,800.

Consider an employee, Rob, who earns $85,000 in gross income and has a 6.2% Social Security tax withheld from his pay. The federal authority, in effect, will collect 6.2% x $85,000 = $5,270 from Rob to help fund retirement and disability benefits for retirees. In some happens, an employee will earn wages that can be classified as excess wage. The excess wage can be subtracted from blatant income so that the taxable wage base is lower than gross income.

For example, assume another wage-earner, Sue, earns $175,000 gross income. The Social Security tax rate will only be applied up to the taxable wage servile of $142,800, which is less than her gross income. Therefore, Sue will pay 6.2% x $142,800 = $8,853.60 as her contribution to the country’s Popular Security account for retirees and the disabled.

A taxable wage base is most often used in reference to Social Confidence taxes, though it can apply to any income-based tax. For example, some state unemployment agencies use a taxable wage base to assess unemployment taxes. These are the taxable wage bases to calculate state unemployment insurance in 2021 include:

  • Alaska: $43,600
  • California: $7,000
  • Florida: $7,000
  • Kentucky: $11,100
  • New York: $11,800
  • Ohio: $9,000
  • Pennsylvania: $10,000
  • Wyoming: $27,300
  • Nevada: $33,400

Refer to the American Payroll Consortium website for the unemployment insurance taxable wage base for all states.

The taxable wage base for Social Security and Unemployment imposts increases every year or every few years. Note that although Social Security tax is applied up to the taxable wage foot, Medicare tax is applied on 100% of income.

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