self - employment tax is the wage base for social security.
self - employment tax is the wage base for social security.
what is the wage base for social security?
self - employment tax
in 2018, the social security wage base was $128,400 and the social security tax rate was 6.20% paid by the employee and 6.20% paid by the employer. a person with $10,000 of gross income had $620.00 withheld as social security tax from his check and the employer sent an additional $620.00. a person with $130,000 of gross income in 2017 incurred social security tax of $7,886.40 (resulting in an effective rate of approximately 6.07% - the rate was lower because the income was more than the 2017 "wage base", see below), with $7,886.40 paid by the employer. a person who earned a million dollars in wages paid the same $7,886.40 in social security tax (resulting in an effective rate of approximately 0.79%), with equivalent employer matching. in the cases of the $130k and $1m earners, each paid the same amount into the social security system, and both will take the same out of the social security system.
social security wage base
the social security component of the fica tax is regressive. that is, the effective tax rate regresses, or decreases, as income increases beyond the compensation limit or wage base limit amount. the social security component is a flat tax for wage levels under the social security wage base (see "regular" employees above). because no tax is owed on wages above the wage base limit amount, the total tax rate declines as wages increase beyond that limit. in other words, for wage levels above the limit, the absolute dollar amount of tax owed remains constant.
federal insurance contributions act tax