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For the Old Age, Survivors and Disability Insurance (OASDI) tax or Social Security tax, the Social Security Wage Base (SSWB) is the maximum earned gross income or upper threshold on which a wage earner's Social Security tax may be imposed. The Social Security tax is one component of the Federal Insurance Contributions Act tax (FICA) and Self-Employment tax, the other component being the Medicare tax. It is also the maximum amount of covered wages that are taken into account when average earnings are calculated in order to determine a worker's Social Security benefit.
In 2008, the Social Security Wage Base is $102,000 and the Social Security tax rate is 6.20% paid by the employee and 6.20% paid by the employer.[1] A person with $10,000 of gross income will have $620.00 withheld as Social Security tax from his check, with the employer sending an additional $620.00. A person with $110,000 of gross income in 2008 incurs Social Security tax of $6,324.00 (resulting in an effective rate of approximately 5.75%), with $6,324.00 paid by the employer. A person earning a million dollars in wages will pay the same $6,324.00 in Social Security tax, with similar employer matching. The Congressional Budget Office considers the employer share of taxes to be passed on to employees in the form of lower wages that would otherwise be paid and counts them as part of the employees’ tax burden.[2] Self-employed individuals pay the entire amount of applicable tax.
For the year 2008, the Social Security Wage Base is $102,000. Since 2000, the SSWB has been:
| Year | Wage Base
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| 2008 | $102,000
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| 2007 | $97,500
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| 2006 | $94,200
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| 2005 | $90,000
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| 2004 | $87,900
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| 2003 | $87,000
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| 2002 | $84,900
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| 2001 | $80,400
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| 2000 | $76,200
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See here for a complete historical list of the Social Security Wage Base.
[edit] Use in pension plans
The pension compensation nondiscrimination laws (Internal Revenue Code Section 401(a)(4)) require that qualified pension plans not discriminate in benefits, rights and features in favor of highly compensated employees (in 2007, the threshold is $100K of 2006 gross pay including bonuses and overtime). Because Social Security provides a progressive benefit formula and stops taxation at the SSWB, pension plans may integrate benefits or contributions according to a wage base, frequently at a fraction (e.g. 50%) of the SSWB.
- ^ Publication 15, Employer's Tax Guide (Circular E) (Jan. 2007), p. 16, Internal Revenue Service, U.S. Dep't of the Treasury.
- ^ Historical Effective Federal Tax Rates: 1979 to 2004. Congressional Budget Office (2006-12). Retrieved on 2007-08-20.
