The Social Security Wage Base was increased from $147,000 to $160,200 in 2023, a $13,200 (or 8.9%) increase from the prior year, costing some taxpayers an additional $818 in employment taxes for the year.
The Social Security Wage Base is the amount of wages subject to the 6.2% Social Security Tax. Wages above the $160,200 limit are no longer subject to Social Security tax, but are still subject to the 1.45% Medicare tax, which applies to all wages. Employees and Employers each pay half of the payroll taxes that are credited to the employees record and the wage limit applies equally to both.
For individuals with multiple jobs who earn more than the 2023 wage base, any excess withholdings above the wage limit will be credited back to the taxpayer on their tax return for the year in which the excess occurred. In this case, it may be beneficial for a taxpayer to adjust their Federal Income tax withholding election so they do not over withhold taxes for the year. This may also apply to taxpayers who change jobs partway through the tax year so that the employee pays payroll taxes on wages from two different employers.
Individuals who are Self-Employed may have to pay twice the amounts as employees because they are responsible for paying both the employee and employer portions of the contributions. Therefore, a thorough analysis of the net profit and business entity selection is recommended to determine the optimal election for long-term tax savings. With some entities, such as S-Corporations, taxpayers may be able to keep their wages below the Wage Base, as long as the wage is reasonable, saving on payroll taxes.