What Is the Maximum Social Security Tax for 2015?
With the onset of tax season, Americans are getting an unpleasant reminder of precisely how expensive the Social Security system is to fund, with employment taxes eating up as much as 12.4% of an individual's earnings every year. But the good news, if there is such a thing when talking about taxes, is that things could be worse.
Unlike income taxes, the amount an individual must pay into the Social Security system is capped. For 2014, Social Security taxes are assessed against only the first $117,000 in a taxpayer's earnings. For 2015, the figure increases to $118,500. Any earnings above these thresholds in the respective year are tax-free from the perspective of Social Security taxes.
The taxable maximum has increased almost every year since the early 1970s. The one notable exception was the period from 2009 through 2011, when the threshold held constant at $106,800 in the immediate wake of the financial crisis.
Working backwards from these figures, we can arrive at the maximum Social Security tax liability for any given year. For 2014, the most that a non-self-employed person will have to pay is $7,254. You get this by multiplying $117,000 (the 2014 taxable maximum) by 6.2% (an employee's share of Social Security taxes). For 2015, the figure is $7,347 ($118,500 times 6.2%).
The situation is a bit grimmer for self-employed people. This follows from the fact that self-employed workers must pay both the employee and employer share of the taxes. In the case of Social Security, that amounts to a 12.4% rate. Thus, for self-employed people, the limits for 2014 and 2015 are exactly double the limits for non-self-employed people: $14,508 and $14,694, respectively.
The silver lining, as I pointed out at the beginning, is that things could be worse. Take income taxes as an example. Not only are income taxes not capped, they instead eat up a progressively larger share of earnings the more money you make. For a single taxpayer in 2014, this ranges from 10% of your first $9,075 in taxable income, up to 39.6% of earnings in excess of $406,750.
An even closer analogy are Medicare taxes, which, together with Social Security taxes, round out what we refer to as employment taxes. From 1966 to 1990, Medicare taxes abided by the same maximum threshold as Social Security taxes. But shortly thereafter, in 1993 to be exact, the threshold was eliminated. As a result, for both 2014 and 2015, employees and employers are each assessed a 1.45% tax on the former's wages, while self-employed people pay 2.9%.
At the end of the day, there's no getting around the fact that taxes are an unsavory part of life. The one consolation is that many of the programs funded by your taxes will someday return the favor by helping to fund your retirement and pay for your health care.
The article What Is the Maximum Social Security Tax for 2015? originally appeared on Fool.com.
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