You’re doing your year-end financial review and trying to figure out how much you’ll have next year to pay the bills, handle any big expenses and save. To a large extent, it will depend on how much you have to pay in taxes.
On the long list of taxes that get siphoned out of your earnings is the Social Security tax. You see it in the FICA box on your pay stub. The Social Security tax is a percentage of gross wages that most employees, employers and self-employed workers are required to pay to fund the Social Security program. For example,
- Employees pay 6.2% of their taxable wages
- Employers pay an additional 6.2% of the employee’s taxable wages
- Self-employed workers pay the full 12.4% of taxable wages. However, self-employed individuals can deduct the employer-equivalent portion.
Since the beginning of Social Security in 1937, there has always been an annual income maximum you had to pay Social Security tax on.
- In 1937 the Social Security tax was applied to the first $3,000 of income. There was no Social Security tax on income above $3,000.
- By 2011 the “tax max” was $106,800. No tax above that.
- In 2024 the Social Security tax cap was $168,600. No tax above that.
- And, if you’re planning for next year, the Social Security tax cap increases to $176,100.
Don’t expect these annual increases to ever stop. The Social Security Administration (SSA) adjusts the Social Security tax cap each year based on the National Average Wage Index (NAWI).
So, what does all this mean in dollars? If you earn the maximum of $176,100 in 2025, that’s $7,500 more than the 2024 cap. Multiply that by the 6.2% that comes out of your check, and you’ll pay $465 more in 2025 than you did in 2024.
There are some workers who don’t have to pay Social Security taxes. They include
- Certain members of religious groups or organizations
- Students and certain young (minor) workers
- Employees of foreign governments
- People the IRS considers to be “Non-resident aliens”
So, now you know. Plan wisely.
Disclaimer
This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors, all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investment Partners at 1-888-777-0970 or email us at [email protected].
