The Social Security (Old-Age, Survivors, and Disability Insurance) taxable wage base is to increase to $142,800 for 2021, up from $137,700 for 2020, the Social Security Administration said Oct. 13 in a news release.
The maximum 2021 Social Security component of the Federal Insurance Contributions Act tax payable by each employee is $8,853.60, which is 6.2% of the taxable wage base, up from $8,537.40 for 2020. Employers match the employee amount with an equal contribution.
The Medicare (Hospital Insurance) tax rate remains 1.45% and is applicable to all wages paid during the year. An additional Medicare tax of 0.9% applies to individuals with annual earned income of more than $200,000, and $250,000 for married couples filing jointly, the agency said. While employers are required to pay a matching 1.45% portion of the standard Medicare tax, employers are not required to pay a matching 0.9% portion of the additional Medicare tax.
For 2021, an employee who earns exactly $142,800 is subject to a total FICA tax (Social Security tax plus Medicare tax) of $10,924.20 ($8,853.60 + $2,070.60), up from $10,534.05 for 2020.
Employees are to earn one credit for each $1,470 of earnings paid in 2021, up from $1,410 in 2020, the SSA said. Employees may earn a maximum of four credits in a year. Those who receive the maximum wages taxable under Social Security in any year also receive four coverage credits. Employees must be credited with a certain amount of work earned under Social Security to qualify for benefits.
The Social Security earnings limit for workers who reach full retirement age increases to $50,520 in 2021, up from $48,600 in 2020, the SSA said. The earnings limit applies only to workers who retire in the year they reach retirement age. After earnings reach this limit, $1 in benefits is withheld for every $3 in earnings exceeding the limit only in those months preceding the month full retirement age is reached. There is no limit on earnings from the full retirement-age month and later.
The earnings limit for workers who retire before reaching full retirement age increases to $18,960 in 2021, compared with $18,240 in 2020, the SSA said. One dollar in benefits is to be withheld for every $2 in earnings that exceed this limit, the SSA said.
The SSA also said a cost-of-living increase of 1.3% is to take effect for 2021, compared with 1.6% in 2020, affecting several thresholds for benefits and coverage.