President Roosevelt first introduced Social Security in 1935. The almost 90-year-old program has become a vital source of income for tens of millions of US households every month. The Social Security program is constantly evolving, and several key changes are coming in 2024.
The Social Security Administration (SSA) recently announced that the maximum earnings subject to the Social Security component of the FICA tax will increase from $160,200 to $168,600. For 2024, the maximum Social Security tax that an employee will pay is $10,453 ($168,600 x 6.2%).
Summary of changes coming in 2024
- Social Security benefits will increase by 3.2%, raising the average monthly check for a single retired worker to $1,907, up $59 from $1,827 in 2023
- The maximum benefit for a high-income single worker claiming Social Security at full retirement age will be $3,822 a month in 2024, up 5.4%
- The maximum amount of earnings subject to Social Security tax (also known as the wage base) will rise to $168,600, up 5.2% over 2023
- The adjustment means higher taxes for about 6% of workers
- The Social Security tax rate is unchanged at 12.4% (half is deducted from the employee’s paycheck, and the other half is paid by the employer)
- The maximum Social Security tax per worker will rise by $1,041.60 to $20,906.40, with $10,453.20 of that taken directly out of an employee’s paycheck
COLA increase stabilizes
Every year, based on increases in the national average wage index, the Social Security Administration (SSA) calculates an automatic taxable wage cap adjustment to ensure that monthly Social Security payments keep up with inflation. This is known as the cost-of-living adjustment (COLA). Based on the increase in inflation measured in the Consumer Price Index (CPI-W) from the third quarter of 2022 through the third quarter of 2023, Social Security and Supplemental Security Income (SSI) recipients will receive a 3.2% cost of living adjustment (COLA) for 2024—this after a sharp 8.7% COLA raise in 2023. The COLA adjustment will take effect at the end of 2023 or January 2024 for the roughly 71 million recipients.
Increased tax for high earners
Social Security gets the majority of its funding from payroll taxes on current workers. As a result of the wage base increase, workers with income equal to or beyond the new wage cap will have to pay a total of $20,906.40 in Social Security tax in 2024 (of which salaried workers pay half). Beginning in January, employees whose compensation exceeds the current 2023 taxable earnings cap ($160,200) will notice a decrease in net take-home pay due to the payroll tax adjustment.
For 2024, an employer must withhold:
- 6.2% Social Security tax on the first $168,600 of employee wages
- 1.45% Medicare tax on the first $200,000 of employee wages
- 2.35% Medicare tax on all employee wages above $200,000
Businesses must adjust systems and notify employees
Before the start of the new year, employers should:
- Adjust their payroll systems to account for the higher taxable wage (if you have a cloud-based payroll system, this should happen automatically)
- Notify affected employees that more of their pay will be subject to payroll withholding
What about self-employed individuals?
The 2024 self-employment tax is 12.4% Social Security tax on the first $168,400 of self-employment income, reaching a maximum tax of $20,906.40 (12.4% of $168,400).
Have any questions about your 2024 payroll tax filing or payments?
At Financial Solution Advisors, our experienced team has been helping clients with payroll tax planning for over 40 years. We’ve also adopted cloud-based payroll technology to help to automate your payroll processes. Send us a message if you’re ready to hand off your payroll process and save your business time, hassle, and money.
Learn more about the Social Security wage base increase 2024: SSA 2024 Fact Sheet