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.