A Closer Look at the Taxable Wage Base and How It Works



Jeff Aleixo

taxable wage base state unemployment insurance tax

A taxable wage base is the maximum annual wage on which a taxpayer must pay taxes. For example, if an employee earns $150,000 a year at an organization, and the US government sets the taxable wage base for Social Security at $100,000 this year, the employee will only pay Social Security taxes on the first $100,000 of his/her income.

Assuming that the employee’s take-home pay is $9,000/pay period, after he/she has earned $100,000 for the year, the employer will stop withholding Social Security taxes. After the taxable wage base has been reached, the employee’s take-home pay might go up to approximately $9,250.

Learn how to handle and significantly lower state unemployment taxes and simplify unemployment administration with this detailed guide.

SUI and Unemployment Compensation

Studies show that employers’ unemployment costs are rising higher and higher each year. Companies continue to fend off these ever increasing costs. However, many companies still wind up paying more than the minimum un-insurance premiums each year because they don’t have a thorough understanding of the laws.

Each state normally determines the amount of an organization’s un-insurance payment, based on the laws established in each organization’s state, along with a comparison of benefits against taxes an organization would typically pay in a given period of time.

So much of this is in the hands of the State’s interpretation, as there is nothing official about the process, which is why States are getting away with overcharging premiums unless there is a knowledgeable and watchful eye overseeing the process. Currently the law in place deems that it is not mandated for States to report any overcharging due to oversights unless the mistake is greater than 18 percent.

Taxable Wage Base 2019

The maximum amount of wages subject to the old age, survivors, and disability insurance (OASDI) tax increased to $132,900 for 2019. Even though this is not the biggest jump companies have experienced, it does set a new record as being the highest taxable wage base to date. The OASDI tax rate is 6.2%, so an employee with wages up to or above the maximum in 2019 would pay $8,239.80 in tax and the employer would pay an equal amount. Self-employed individuals pay tax at a 12.4% rate up to the limit. The 2018 wage base was $128,400, for a $7,960.80 maximum amount of OASDI tax.

The Medicare hospital insurance tax of 1.45% for employees and employers, or 2.9% for the self-employed, has no wage limit.

Outsource tax processing and tax preparation to reduce unemployment taxes substantially, while remaining compliant with ever-changing tax laws.

Editor’s Note: This post has been updated for accuracy and comprehensiveness.