Social Security taxes are assessed on only a certain amount of wages each year. This amount is called the contribution and benefit base. Only wages up to the base count in the determination of your retirement benefit.
The Social Security tax rate is 12.4%. If you are an employee, half of this amount is withheld from your paycheck and the other half is paid by your employer. Self-employed individuals pay the full 12.4% on their net earnings from self-employment.
Note: Medicare is an entirely separate tax and is not subject to any annual cap.
In 2009, the annual contribution and benefit base is $106,800 an increase of $4,800 over 2008’s $102,000 limit.
