Social Security is currently financed by a 12.4 percent tax on earnings, up to the cap (which is projected to be $170,400 next year). This tax is split between employees and employers, with each contributing 6.2 percent. The revenue from this tax goes towards funding the Social Security program, which provides benefits to retirees, disabled individuals, and survivors of deceased workers.
Medicare tax is a payroll tax deducted from your paycheck to fund the federal Medicare health insurance program. How much you pay depends on your income level. Employees and employers each contribute 1.45 percent of wages towards Medicare, and individuals earning over a certain threshold may be subject to an additional Medicare tax of 0.9 percent.
Starting Jan. 1, 2020, the maximum earnings subject to the Social Security payroll tax will increase to $137,700. This means that individuals earning above this threshold will not have to pay Social Security taxes on the excess income. The increase in the taxable wage base is adjusted annually based on changes in average wages.
If you paid Uncle Sam more than his fair share in payroll taxes in 2023, you may be owed a refund. In 2023, you would have paid a combined Social Security and Medicare tax rate of 2.35 percent if your income exceeded $200,000 ($250,000 for married couples filing jointly). Any excess Medicare tax withheld will be refunded when you file your tax return.
Overpayments and repayments are two of the most common anomalies that complicate year-end and W-2 processing. It is important to review your pay stubs and tax documents to ensure that you are not overpaying or underpaying Social Security and Medicare taxes. Incorrect withholdings can result in penalties and interest charges.
Medicare tax is a type of payroll tax paid by employees and employers to fund the federal Medicare program. In addition to the standard Medicare tax rate of 1.45 percent, high-income individuals may be subject to a Medicare surtax of 0.9 percent on earnings above certain thresholds. This additional tax helps fund Medicare Part A, which covers hospital insurance.
An employer will issue a Form W-2 to you if you are an employee. Your Form W-2 will detail your total earnings, tax withholdings, and contributions to Social Security and Medicare. It is important to review this form for accuracy and report any discrepancies to your employer or the IRS.
Time to update your payroll system: SSA has announced the 2024 Social Security taxable wage base. Employers should adjust their payroll systems to reflect the new taxable wage base to ensure accurate withholding of Social Security taxes for their employees.
