CHAPTER 4

Social Security Tax Limit



When you are working it doesn’t seem like the social security tax limit will ever come into play for you, but it can. The quick answer is that for the year 2009, the limit on the social security tax is 7.65% for the employee and the same amount for the employer.

If one is self-employed, then one must pay both sides of the tax rate, or a total of 15.30% to the government. That social security tax limit has been in place since 1990, when it was increased from 7.51% in 1989 (or 15.02% if self-employed).

Of course, just because the rate itself has not risen since 1992, doesn’t mean that you are not paying more into social security. The government has increased the “Annual Maximum Taxable Earnings” in dollars upon which the tax rate is applied.



We mentioned above that the rate increased in 1990. The Annual Maximum Taxable Earnings increase also from $48,000 in 1989 to $51,300 in 1990. So you were taxed at a higher rate on a greater earnings amount in 1990. And of course, the Annual Maximum Taxable Earnings has only gone up since then.

Matter of fact, the Annual Maximum Taxable Earnings HAS GONE UP EVERY YEAR SINCE 1971. It increased by 4.7% from 2008 to an amount of $106,800 in 2009. The following table shows that, although the social security tax limit has not changed, by increasing the Annual Maximum Taxable Earnings over the last 10 years from 2000 - 2009, the government has received $138,756 from the employer and employee. Had the Annual Maximum Taxable Earnings not increase since 200, they would have collected $116,586. So they have collected an incremental $22,170 from us, just due to the increases in the Annual Maximum Taxable Earnings over this time period, without having to increase the social security tax rate.

YearAnnual Maximum Taxable EarningsTotal, OASDI and HI RateEmployee PaymentEmployer + Employee Payment
2000$76,2007.65%$5,829$11,659
2001$80,4007.65%$5,829$12,301
2002$84,9007.65%$6,151$12,990
2003$87,0007.65%$6,595$13,311
2004$87,9007.65%$6,656$13,449
2005$90,0007.65%$6,724$13,770
2006$94,2007.65%$6,885$14,413
2007$97,5007.65%$7,206$14,918
2008$102,0007.65%$7,803$15,606
2009$106,8007.65%$8,170$16,340
Total $69,387$138,756
Total @ yr. 2000 level $58,293$116,586
Increase 2000 - 2009 $11,085$22,170


Even though it has not changed since 1990, keep an eye on the social security tax limit. You can expect that to change too at some point.



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