As we near 2025, the Social Security wage base is set to change. The Social Security Administration has revealed that the wage base for calculating Social Security tax will rise to $176,100 in 2025 (up from $168,600 in 2024). Earnings and self-employment income above this threshold won’t be subject to Social Security tax.
For businesses with employees, this may mean planning for higher payroll expenses, particularly if you employ many high-earning workers.
Fundamentals of Social Security
The Federal Insurance Contributions Act (FICA) places two taxes on employers, employees, and self-employed individuals. One is for Old Age, Survivors and Disability Insurance, commonly referred to as Social Security tax, and the other is for Hospital Insurance, typically known as Medicare tax.
There’s a cap on the amount of compensation subject to Social Security tax, but no such limit exists for Medicare tax. In 2025, the FICA tax rate for employers will remain at 7.65% — 6.2% for Social Security and 1.45% for Medicare (unchanged from 2024).
2025 updates
For 2025, employees will pay:
- 6.2% Social Security tax on the first $176,100 of wages (6.2% × $176,100 equals a maximum tax of $10,918.20), plus
- 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns, $125,000 for married taxpayers filing separately), plus
- 2.35% Medicare tax (standard 1.45% Medicare tax plus 0.9% additional Medicare tax) on all wages exceeding $200,000 ($250,000 for joint returns, $125,000 for married taxpayers filing separately).
For 2025, self-employed individuals will face the following self-employment tax:
- 12.4% Social Security tax on the first $176,100 of self-employment income, resulting in a maximum tax of $21,836.40 (12.4% × $176,100), 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 return of a married individual filing separately), plus
- 3.8% (2.90% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income above $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing separately).
Wage base history
The Social Security payroll tax, introduced in 1937, initially had a wage base of $3,000. This remained unchanged until 1950. As the economy grew and wages increased, adjustments were necessary to maintain sufficient revenue for the Social Security system. By 1980, the wage base had reached $25,900. It further rose to $76,200 in 2000 and $137,700 by 2020. These changes were largely driven by inflation and wage growth.
Employees with more than one job
Employees working for multiple employers often have questions about tax withholding. Even if an employee reaches the wage base threshold from combined income, each employer must continue withholding Social Security taxes. This may result in excess withholding, but employees can claim a credit for this on their tax returns. Employers cannot stop withholding at an employee’s request, regardless of their other employment situations.
Thinking ahead
If you have concerns about payroll tax filing or payments for the current year or 2025, don’t hesitate to reach out. We’re here to help ensure your business stays compliant with all payroll tax requirements. Our team can guide you through any changes or complexities in the system, helping you avoid potential issues and optimize your payroll processes for the years ahead.
© 2021. Updated October 2024.