Every year, the Social Security Administration adjusts Social Security taxes and benefits to account for inflation. These adjustments are based on the Consumer Price Index. For those who receive benefits, there is good news: Social Security payments will increase by 2.8% for 2019. The average monthly retirement benefit will go up from $1,422 to $1,461.
However, Social Security taxes will also increase for many American workers. Social Security is funded by employees and their employers. If you work as an employee, you must pay a Social Security tax equal to 6.2% of your annual wages up to an annual wage ceiling, which your employer withholds from your pay and sends to the IRS. Your employer must pay the same amount to the IRS out of its own pocket. Together, you and your employer pay a 12.4% Social Security tax up to the annual wage ceiling.
Wages over the annual ceiling are not subject to the Social Security tax. For 2018, the Social Security tax ceiling was $128,400. For 2019, the ceiling was raised by $4,500 to $132,900. For employees who earn $132,900 or more in wages, this will result in an additional $558 in Social Security taxes having to be paid—an additional $279 from the employee and employee.
Medicare taxes, which are withheld and paid along with Social Security taxes by your employer, are unchanged for 2019. There are two Medicare tax rates: a 2.9% tax up to an annual wage ceiling—$200,000 for single taxpayers and $250,000 for married couples filing jointly; this ceiling is not adjusted for inflation. Employers and employees each pay half of these taxes. An additional 0.9% Medicare tax must be paid on wages over $200,000/$250,000. The entire 0.9% must be paid by employees, employers do not contribute. Thus, employees must pay a 1.45% Medicare tax on their wages up to $200,000/$250,000 and a 2.35% tax on the portion of their wages over the $200,000/$250,000 thresholds.
If you’re self-employed, you must pay all your Social Security and Medicare taxes yourself; you don’t have an employer to pay half of them for you. Thus, you must pay a 12.4% Social Security tax plus a 2.9% Medicare tax, for a total of 15.3% in self-employment taxes. You’ll also have to pay an additional 0.9% Medicare tax if your self-employment income exceeds $200,000 if you’re single or $250,000 if you’re married and file jointly. When you’re self-employed, the Social Security tax ceiling used for employees also applies to you. Thus, you’ll need to pay the 12.4% Social Security tax only on the first $132,900 of your net self-employment income for 2019.