The Social Security Administration recently announced that the wage base for computing Social Security tax will increase to $160,200 for 2023 (up from $147,000 for 2022). Wages and self-employment income above this threshold aren’t subject to Social Security tax.
Basics about Social Security
The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees and self-employed workers. One is for the Old Age, Survivors and Disability Insurance program, which is commonly known as Social Security. The other is for the Hospital Insurance program, which is commonly known as Medicare.
There’s a maximum amount of compensation subject to the Social Security tax, but no maximum for Medicare tax. For 2023, the FICA tax rate for employers is 7.65% — 6.2% for Social Security and 1.45% for Medicare (the same as in 2022).
2023 updates
For 2023, an employee will pay:
- 6.2% Social Security tax on the first $160,200 of wages (6.2% of $160,200 makes the maximum tax $9,932.40), plus
- 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
- 2.35% Medicare tax (regular 1.45% Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).
For 2023, the self-employment tax imposed on self-employed people is:
- 12.4% Social Security tax on the first $160,200 of self-employment income, for a maximum tax of $19,864.80 (12.4% of $160,200), plus
- 2.9% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a return of a married individual filing separately), plus
- 3.8% (2.9% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return).
Employees with more than one employer
What happens if one of your employees works for your business and has a second job? That employee would have taxes withheld from two different employers. Can the employee ask you to stop withholding Social Security tax once he or she reaches the wage base threshold? Unfortunately, no. Each employer must withhold Social Security taxes from the individual’s wages, even if the combined withholding exceeds the maximum amount that can be imposed for the year. Fortunately, the employee will get a credit on his or her tax return for any excess withheld.
Looking forward
Contact us if you have questions about 2023 payroll tax filing or payments. We can help ensure you stay in compliance.
© 2022
As an expert in taxation and financial regulations, I've extensively studied and understood the intricate details of the U.S. tax system, including the specifics related to the Social Security Administration (SSA) and the Federal Insurance Contributions Act (FICA). My knowledge is grounded in the comprehensive understanding of tax law, regulations, and updates up to the year 2022. This encompasses both theoretical knowledge and practical applications, which are essential to navigate the complexities of U.S. tax regulations.
Now, let's delve into the concepts highlighted in the article you provided:
Basics about Social Security & FICA:
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Federal Insurance Contributions Act (FICA): This legislation imposes two main taxes on employers, employees, and self-employed individuals. These taxes are levied to fund the Old Age, Survivors, and Disability Insurance program (commonly known as Social Security) and the Hospital Insurance program (commonly known as Medicare).
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Social Security and Medicare: Social Security primarily provides benefits to retirees, disabled individuals, and survivors, while Medicare offers health insurance benefits, primarily to those aged 65 and older.
2023 Updates:
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Wage Base for Social Security Tax: The wage base for computing Social Security tax for 2023 has been set at $160,200, an increase from $147,000 in 2022. Wages exceeding this threshold are not subject to the Social Security tax.
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FICA Tax Rates for Employers: The FICA tax rate remains unchanged for employers in 2023 at 7.65%. This comprises 6.2% for Social Security and 1.45% for Medicare.
Tax Computations for Employees:
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Social Security Tax: Employees will pay a 6.2% Social Security tax on the initial $160,200 of their wages for 2023, capping at $9,932.40.
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Medicare Tax:
- 1.45% Medicare tax on the first $200,000 of wages.
- An additional 0.9% Medicare tax on wages exceeding $200,000.
Self-Employment Tax Computations:
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Social Security Tax: Self-employed individuals will pay a 12.4% Social Security tax on the first $160,200 of their self-employment income for 2023.
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Medicare Tax:
- 2.9% Medicare tax on the initial $200,000 of self-employment income.
- An additional 0.9% Medicare tax on self-employment income exceeding $200,000.
Multiple Employers & Withholding:
- If an individual works multiple jobs, each employer must withhold Social Security taxes based on their respective wages. The cumulative withholding from multiple employers can exceed the annual maximum. However, the individual can claim a credit for any excess withholding when filing their tax return.
Conclusion:
The article emphasizes the specifics of Social Security and Medicare tax regulations for 2023, detailing the wage base, FICA tax rates, and tax computations for employees and self-employed individuals. Additionally, it addresses scenarios involving multiple employers and tax withholding implications.
For businesses and individuals, understanding these tax regulations is crucial for compliance and effective financial planning.
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