Social Security Wage Base Clarified: It’s $51,300

A late change in the amount of wages subject to the Social Security payroll tax this year is confusing some employers who received notices containing outdated information, government officials said Wednesday.

The Social Security Administration in October announced that earnings up to $50,400 would be subject to the payroll tax in 1990, up from the $48,000 cutoff in 1989. But, in November, Congress enacted a deficit-reduction bill that increased the figure to $51,300 for 1990.

According to Steve Pyrek, a spokesman for the Internal Revenue Service, the annual tax guide sent to employers late last year said that the “wage base” would be $50,400. A notice that the figure has been increased to $51,300 will go out in a mailing later this month listing tax law changes, he said.

Earnings above the wage base are exempt from Social Security taxes.

“There’s been confusion because people are getting publications . . . and various IRS documents that have what was correct information that’s now incorrect,” Pyrek said.

Social Security Administration spokesman Frank Battistelli said his agency plans a special mailing this month to 400 business and trade groups publicizing the change in the 1990 figure.

Increases in the taxable wage base are tied to the increase in average annual wages. The increase in the 1990 wage base occurred when Congress decided to include deferred compensation, such as earnings set aside in 401(k) retirement accounts, in the formula used to calculate the total amount of wages in the economy that are subject to the Social Security tax.

Adding deferred compensation to the calculation resulted in a bigger-than-expected increase in average annual wages.

The Social Security tax rate, which applies to both employer and employee, was 7.51% in 1989 and rises to 7.65% this year.

The combined effects of the increased tax rate and the higher taxable wage base mean the maximum amount of Social Security taxes deducted will jump by $320, $6.15 a week, to $3,924 for someone who earns $51,300 or more.