The wage base limit has tax and monthly benefit implications that make it worth paying attention to.
For better or worse, there’s no shortage of Social Security changes every year. That’s just the nature of the program, and it has been since it was created decades ago. October, in particular, is a month when huge changes for the upcoming year are announced.
One of the most important announcements is the annual Social Security cost-of-living adjustment (COLA), which will be announced on Oct. 10. The COLA amount can be found on the Social Security website (SSA.gov) in its “latest news” section.
The annual COLA gets a lot of attention (rightly so), but it isn’t the only important number that Social Security will release in October. Workers should also keep an eye out for the changes in the wage base limit. It may not be as exciting as the COLA, but it has significant implications that make it worth keeping up with.
Image source: Getty Images.
So, what exactly is the wage base limit?
Most U.S. workers pay Social Security payroll taxes throughout their careers. If you have an employer, you both pay 6.2% in taxes, totaling 12.4%. If you’re self-employed, you’re responsible for the full 12.4% yourself. That’s the could-be-better news.
The good news is that not all income is eligible for Social Security payroll taxes. The cutoff amount is the wage base limit. Any amount earned above the wage base limit is exempt from Social Security payroll taxes, and it’s also not considered when Social Security calculates your monthly benefit.
The wage base limit changes in most years
In 2024, the wage base limit is $168,600, but this is likely to increase. For perspective, here are the last 10 wage base limits:
| Year | Wage Base Limit |
|---|---|
| 2023 | $160,200 |
| 2022 | $147,000 |
| 2021 | $142,800 |
| 2020 | $137,700 |
| 2019 | $132,900 |
| 2018 | $128,400 |
| 2017 | $127,200 |
| 2016 | $118,500 |
| 2015 | $118,500 |
| 2014 | $117,000 |
Data source: Social Security Administration.
Along with 2015 and 2016, 2009 through 2011 are the only years where the wage base limit remained the same ($106,800) in the past five decades, so having no change is not very common.
How Social Security determines the wage base limit each year
Social Security uses the national average wage index (AWI) to determine the yearly wage base limit. The AWI measures the average annual wages for workers covered under Social Security.
Social Security looks at the AWI from one year and compares it to the previous year to determine if an increase in the wage base limit is needed. For example, the national AWI for 2022 was $63,795.13, around 5.32% higher than 2021’s AWI. That’s why the wage base limit increased from $160,200 in 2023 to $168,600 in 2024.
To determine the 2025 wage base limit, Social Security will compare 2023’s national AWI to 2022’s.
If the AWI doesn’t change or if it decreases, there will be no change to the wage base limit. There won’t be a situation where Social Security lowers the wage base limit.
Wage base limit is important if you plan to receive the maximum benefit
Receiving the maximum monthly Social Security benefit ($4,873 in 2024) is a two-step process. The easier of the steps is delaying benefits until you reach age 70. The harder of the steps is earning above the wage base limit for the 35 years Social Security uses to calculate your monthly benefit.
If you want to receive the maximum monthly benefit in any given year, both criteria must be met. That’s partly why keeping up with the wage base limit is important. Some people may find that they earn above the limit in one year and then less in another year with an increase to the wage base limit.
Add that to the tax implications of the wage base limit, and it’s worth ensuring you know the number heading into 2025.