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<\/div>\n S<\/span>tarting Jan. 1, 2023, the maximum earnings subject to the Social Security payroll tax will increase by nearly 9 percent to $160,200\u2014up from the $147,000 maximum for 2022, the Social Security Administration (SSA) announced Oct. 13<\/a>. The SSA also posted a fact sheet<\/a> summarizing the 2023 cost-of-living adjustments (COLAs).<\/p>\n The taxable wage cap is subject to an automatic adjustment each year based on increases in the national average wage index<\/a> (not the inflation rate), calculated annually by the SSA. However, wage increases this year outpaced previous years due, in part, to the surge in inflation. On Oct. 13, the IRS announced<\/a> that through September the year-over-year increase in the consumer price index was 8.2 percent, down from the 9.1-percent high notched for the annual period ending in June.<\/p>\n <\/p>\n Payroll Taxes: Cap on Maximum Earnings<\/span><\/strong><\/p>\n<\/td>\n<\/tr>\n Type of Payroll Tax<\/span><\/strong><\/p>\n<\/td>\n 2023 Maximum Earnings<\/span><\/strong><\/p>\n<\/td>\n 2022 Maximum Earnings<\/span><\/strong><\/p>\n<\/td>\n<\/tr>\n Social Security<\/span><\/p>\n<\/td>\n $160,200<\/strong><\/span><\/p>\n<\/td>\n $147,000<\/span><\/p>\n<\/td>\n<\/tr>\n Medicare<\/span><\/p>\n<\/td>\n No limit<\/span><\/p>\n<\/td>\n No limit<\/span><\/p>\n<\/td>\n<\/tr>\n Source: Social Security Administration.<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Growth in the Social Security wage cap from $128,400 in 2018 to $160,200 in 2023 represents nearly a 25 percent increase over the past five years.<\/p>\n Adjust Systems, Notify Employees<\/p>\n Employees whose compensation exceeds the current 2022 taxable earnings cap of $147,000 may notice a slight decrease in net take-home pay beginning next January due to the payroll tax adjustment.<\/p>\n By the start of the new year, U.S. employers should:<\/p>\n FICA Rates<\/p>\n Social Security and Medicare payroll taxes are collected together as the Federal Insurance Contributions Act (FICA) tax. FICA tax rates are statutorily set and can only be changed through new tax law.<\/p>\n Social Security is financed by a 12.4 percent payroll tax on wages up to the taxable earnings cap, with half (6.2 percent) paid by workers and the other half paid by employers. Self-employed workers pay the entire 12.4 percent.<\/p>\n For employers and employees, the Medicare payroll tax rate is a matching 1.45 percent on all earnings (self-employed workers pay the full 2.9 percent), bringing the total Social Security and Medicare payroll withholding rate for employers and employees to 7.65 percent\u2014with only the Social Security portion limited to the taxable maximum amount.<\/p>\n\n\n
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\n FICA Rate (Social Security + Medicare Withholding)<\/span><\/td>\n<\/tr>\n \n Employee<\/td>\n 7.65%
(6.2% + 1.45%)<\/td>\n<\/tr>\n\n Employer<\/td>\n 7.65%
(6.2% + 1.45%)<\/td>\n<\/tr>\n\n Self-Employed<\/td>\n 15.3%
(12.4% + 2.9%)<\/td>\n<\/tr>\n\n Note: For employed wage earners, their Social Security portion is 6.2% on earnings up to the taxable maximum. Their Medicare portion is 1.45% on all earnings.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n