Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Taxable Wage Base

What it is:

A taxable wage base is the maximum annual wage on which a taxpayer must pay taxes.

How it works (Example):

For example, let's assume that John earns $150,000 a year as CFO of Company XYZ. The United States government has set the taxable wage base for Social Security taxes at $110,000 this year, meaning that John will only pay Social Security taxes on the first $110,000 of his income

Let's say that John's take-home pay is $8,000 each paycheck. Once he has earned $110,000 for the year his employer will stop withholding Social Security taxes. After John's taxable wage base is hit, his take-home pay might go up to, say, $8,250.

Why it Matters:

Taxable wage base is a term most often used in reference to Social Security taxes, though the concept can apply to any income-based tax. For example, some state unemployment agencies use a taxable wage base to calculate unemployment taxes.

The Social Security taxable wage base typically increases every year or every few years.