A Few Details

Wages are subject to a 6.2% Social Security tax. The tax is payable by both the employee and the employer, making the total tax rate 12.4%.

The amount of earnings subject to the Social Security tax for the year is limited to a taxable wage base. The $118,500 wage base for 2015 is $1,500 higher than the 2014 wage base of $117,000, a 1.28% increase.

The following example illustrates how the taxable wage base is applied.

Example

In 2015, John makes $100,000 and Mark makes $125,000. John will pay $6,200 of Social Security tax (6.2%) on his wages, and his employer will pay an additional $6,200, for a total of $12,400. Mark will pay 6.2% on $118,500 of his wages ($7,347), and his employer will pay an equivalent amount, for a total of $14,694. The remaining $6,500 of Mark’s wages will not be subject to the Social Security tax.

For 2015, self-employed individuals will pay 12.4% on the first $118,500 of their self-employment income, for a maximum Social Security tax of $14,694.

Medicare Tax

Employees and their employers are also obligated to pay a 1.45% Hospital Insurance (Medicare) tax. There is no ceiling on the amount of wages subject to the 1.45% Medicare tax. Returning to the example, Mark will pay a Medicare tax of $1,812.50, or 1.45% of his full $125,000 in earnings, and his employer will pay an equivalent amount. The rate for self-employed individuals is 2.9% (double the 1.45% rate).

High earners must pay an additional Medicare tax of 0.9% on wages exceeding a threshold amount — $200,000 for individuals, $250,000 for joint filers, and $125,000 for married persons filing separately. However, this increase is paid by the employee only, with the employer having no further Medicare tax obligation beyond the base rate of 1.45%. For self-employed individuals, the additional Medicare tax rate is 0.9% on earnings over the threshold.

Benefits

The 1.7% cost-of-living adjustment (COLA) for Social Security and Supplemental Security Income (SSI) beneficiaries is only slightly higher than 2014’s 1.5% increase. According to the SSA, the maximum monthly Social Security benefit for a worker retiring at full retirement age in 2015 will be $2,663. The average monthly Social Security retirement benefit payable in January 2015 is expected to be $1,328.

Have Questions?

We’re here to help. Please don’t hesitate to contact Eric Soro at esoro@dopkins.com or your Dopkins Tax Advisor.

About the Author

Eric R. Soro CPA

Eric, embraces the challenges of taxes and puts them to work for the client. He focuses on every aspect of a client's needs, from preparing top-level corporate and partnership returns through to the culmination of member and shareholder individual returns. Taking into account the ever changing tax laws, Eric researches the complex topics that affect his client's taxes so that he may efficiently plan his process and yield the optimal results. He joined Dopkins as an intern in 2006 then full-time in 2007 upon graduation.