Taxable Wage Base
The taxable wage base, a.k.a. the Social Security wage base, is the tax ceiling on earned income that workers must pay for the Social Security tax.
When you work in the U.S., part of your federal taxes goes towards Social Security. Even if your tax home is abroad, allowing you to skip out on federal and state income taxes, if you’re still a U.S. citizen, you’ll likely have to pay taxes for Social Security. This is because it’s expected that you’ll one day be taking Social Security paychecks, rather than handing them out. Although, the program is running out of money as Baby Boomers are retiring in droves with a relatively skimpy workforce to support it.
Anyway, you only have to pay taxes up to a certain amount of your income, depending on what the taxable wage base is. In 2019, the taxable wage base was $132,900.
Let’s take a look at Maeby, a high-falutin movie exec. She made $500,000 in 2019, so she only has to pay Social Security taxes on her first $132,900. With a rate of 6.2% for Social Security taxes (another 6.2% of the taxable wage base is paid by her employer), she’s looking at a Social Security tax of $8,239.80.
Contrast this with Maeby’s personal waterboy, who gets paid $20,000 a year. He’ll be paying that 6.2% on his entire income, since it’s below the taxable wage base, which is $1,240.