The Social Security Administration (SSA) announced (https://www.ssa.gov/news/press/releases/2020/#10-2020-1) that the maximum amount of wages subject to the old age, survivors, and disability insurance (OASDI) tax will increase to $142,800 in 2021 from $137,700 in 2020. The OASDI tax rate is 6.2%, so an employee with wages up to or above the maximum in 2021 will pay $8,853.60 in tax, with the employer paying an equal amount. Self-employed individuals pay tax at a 12.4% rate up to the limit, for a $17,707.20 maximum amount of OASDI tax.
The Medicare hospital insurance tax of 1.45% each for employees and employers, or 2.9% for the self-employed, has no wage limit.
The SSA also announced that recipients of Social Security benefits will receive a 1.3% cost-of-living adjustment and that the earnings test for the amount of income that benefit recipients can receive without having their benefits reduced each year is $18,960 before full retirement age, and the limit taxpayers can earn in the year they reach full retirement age is $50,520, both increased from 2020.
Sally P. Schreiber, J.D., is a JofA senior editor.