As we are quickly approaching 2024, it’s important to be aware of the changes in the Social Security wage cap and benefit amounts. The wage cap is now set at $168,600, marking a significant threshold for taxpayers. Additionally, beneficiaries of Social Security and Supplemental Security Income (SSI) will see a 3.2% increase in their benefits. These adjustments are a direct response to inflation, ensuring that benefit recipients can maintain their purchasing power.
Implications for Employees and Employers
The Federal Insurance Contributions Act (FICA) mandates a tax of 7.65% on wages, evenly split between the employee and employer. Broken down, this includes a 6.2% tax for Social Security—covering old age, survivors, and disability insurance—and a 1.45% tax for Medicare. Self-employed individuals are responsible for a Self-Employment tax of 15.3%, encompassing both OASDI and Medicare taxes.
It’s crucial to note that the OASDI tax is only applicable to earnings up to the wage cap of $168,600 for the year 2024. Earnings beyond this cap are not subject to the OASDI tax. However, the Medicare tax does not have a wage cap, meaning all earnings are subject to this tax.
Maximized Contributions for High Earners
For those earning at or above the wage cap:
- An employee will contribute $10,453.20 towards Social Security tax.
- Employers match this contribution.
- Self-employed individuals will shoulder a larger sum of $20,906.40 in Social Security tax.
Additional Tax for High-Income Individuals
High-income earners should also prepare for the Additional Medicare tax of 0.9%, which kicks in for wages exceeding $200,000 for single filers, $250,000 for joint filers, and $125,000 for married individuals filing separately.
Benefit Enhancements for 2024
To round off the changes, the 3.2% cost-of-living adjustment (COLA) will enhance the benefits to match inflation rates, ensuring that recipients of Social Security and SSI benefits do not lose out on their financial well-being due to rising costs of living.
Stay Informed and Prepared
Planning and preparation can help you navigate these changes smoothly, and if you are looking for personalized guidance, contact us for tailored advice for your financial situation.