Social Security Wage Base and Earnings Test Amounts Increase in 2024

The Social Security Administration (SSA) recently announced that the “wage base” for computing Social Security tax will increase for 2024 to $168,600. This is up from $160,200 for 2023.

Federal law limits the amount of earnings that are subject to the Old-Age, Survivors, and Disability Insurance (OASDI) tax in a given year. This threshold, referred to as the Social Security wage base, means that if you earn more than $168,600 in 2024, you won’t pay OASDI tax on the amount above that.

Workers will continue to be taxed at the 6.2% OASDI tax rate on wages up to this base amount.

Social Security “Earnings Test” Amounts Also Go Up for 2024

The Social Security program allows workers to start receiving benefits as soon as they reach age 62 — or to put off receiving benefits until age 70.

“Full retirement age” is when individuals become eligible to receive 100% of their Social Security benefits. Those born in 1942 or before were eligible for full Social Security benefits at age 65. For those born between 1943 and 1960, full retirement age increases incrementally until it reaches 67. For example, individuals born in 1955 can receive 100% of their benefits at age 66 years and 2 months.

Still working? Starting Social Security benefits before reaching your full retirement age brings into play the so-called “earnings test,” which limits the amount you can earn while collecting Social Security benefits.

If you’re under the federal retirement age, the limit will be $22,320 for 2024 (up from $21,240 for 2023). This means that for every $2 over this limit, you must forfeit $1 in benefits. For individuals who reach the federal retirement age in 2024, the earnings limit will be $59,520 for the months before you reach your federal retirement age (up from $56,520 in 2023). In this case, $1 in benefits must be forfeited for every $3 over the limit. Starting in the month you reach your federal retirement age, your Social Security benefits won’t be reduced no matter how much you earn.

Adding It Up

In addition, employees must pay Medicare tax on all wages. For 2024, an employee will pay:

• 6.2% Social Security tax on the first $168,600 of wages, making the maximum tax $10,453.20 (6.20% times $168,600), 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).

Self-Employed Individuals

The Social Security and Medicare tax rates for self-employed individuals are doubled. However, these taxpayers can deduct half of these employment tax payments on their federal income tax returns to arrive at adjusted gross income

So for 2024, self-employed people will pay:

• 12.4% Social Security tax on the first $168,600 of self-employment income, plus
• 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return and $125,000 on a separate return) plus
• 3.8% (2.90% 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 and $125,000 for married taxpayers filing a separate return).

The SSA also announced that Social Security and Supplemental Security Income (SSI) benefits will increase by 3.2% in 2024 — significantly less than the 8.7% SSI benefits increase in 2023. The average monthly Social Security benefit will increase from $1,848 to $1,907, and the maximum federal SSI monthly payment to an individual will increase from $914 to $943 in 2024. The maximum federal SSI monthly payment to a couple will increase from $1,371 to $1,415 in 2024.

Want More Information?

If you have questions about Social Security tax or benefits and how they affect you, consult with your tax and financial advisors.

Copyright 2023

This article appeared in Walz Group’s October 16, 2023 issue of The Bottom Line e-newsletter, produced by TopLine Content Marketing. This content is for informational purposes only.