For the Old Age, Survivors and Disability Insurance (OASDI) tax or Social Security tax in the United States, the Social Security Wage Base (SSWB) is the maximum earned gross income or upper threshold on which a wage earner's Social Security tax may be imposed. The Social Security tax is one component of the Federal Insurance Contributions Act tax (FICA) and Self-employment tax, the other component being the Medicare tax. It is also the maximum amount of covered wages that are taken into account when average earnings are calculated in order to determine a worker's Social Security benefit.
In 2010, the Social Security Wage Base was $106,800 and the Social Security tax rate was 6.20% paid by the employee and 6.20% paid by the employer. A person with $10,000 of gross income had $620.00 withheld as Social Security tax from his check and the employer sent an additional $620.00. A person with $110,000 of gross income in 2010 incurred Social Security tax of $6,621.60 (resulting in an effective rate of approximately 6% - the rate was lower because the income was more than the 2010 "wage base", see below), with $6,621.60 paid by the employer. A person who earned a million dollars in wages paid the same $6,621.60 in Social Security tax (resulting in an effective rate of approximately 0.66%), with similar employer matching. In the cases of the $110k and $1m earners, each paid the same amount into the social security system, and both will take the same out of the social security system.
Read more about Social Security Wage Base: Details, Historical Data, Use in Pension Plans
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