The Social Security Administration recently announced new wage base limits for 2020. A wage base limit, also known as a contribution and benefit base, is set to limit the sum of earnings that can be taxed for Social Security and other select benefits. The wage base limit for 2019 has been set at $132,900. In 2020, the base will rise to $137,700. When the wage base increases to $137,700, the maximum contributions payable by an employee and their employer will increase to $8,537.40 per year, equivalent to 6.2% of the wage base. The Medicare rate and limit for 2020 will stay the same.
Why does the wage base limit change?
The main reason the Social Security Administration raises the wage base limit is to accommodate for increases in the cost of living. These increases are referred to as COLAs or Cost-Of-Living-Adjustments. Each year the wage base limit increases a small percentage; however, in 2010, 2011, and 2016, there was a 0% increase. In more recent years, the increase has been 2.0 % and 2.8%. The COLA for 2020 is a slightly smaller increase as it only increased benefits for retired workers by 1.6%.