What is the Social Security cap?

Managing payroll taxes correctly is essential for businesses, and one key factor is the Social Security cap—the maximum amount of an employee’s earnings subject to Social Security tax each year. Once an employee reaches this limit, no additional Social Security tax is withheld for the rest of the year.

For businesses using Homebase payroll, tracking these limits automatically ensures accurate tax calculations and IRS compliance without manual adjustments.

How much is the Social Security tax?

The IRS sets the Social Security tax rate and applies to wages up to the annual cap. As of 2025, the tax rate is:

6.2% for employees (deducted from wages)
6.2% for employers (matched by the business)
12.4% total tax contribution (combined employee and employer share)

This tax funds the Social Security program, which benefits retirees, disabled individuals, and survivors of deceased workers.

2025 Social Security wage cap: What you need to know

The Social Security wage cap for 2025 is $176,100. This means:

Employees only pay Social Security tax on wages up to $176,100
Wages earned beyond this cap are not subject to Social Security tax
Employers only match Social Security contributions up to the cap

How the Social Security cap affects payroll

Once an employee reaches the cap, businesses must adjust payroll tax withholdings. Key considerations include:

Payroll systems must track year-to-date earnings to stop deductions at the cap.
Higher-earning employees will see increased take-home pay once Social Security tax no longer applies.
Medicare tax still applies, as it has no wage cap.

With Homebase payroll, businesses can automate Social Security tax tracking and ensure deductions stop at the right time—helping avoid errors and ensuring compliance.

Social Security tax vs. Medicare tax

Unlike Social Security tax, Medicare tax has no cap, meaning employers must continue withholding it on all wages. The Medicare tax rates are:

1.45% for employees and 1.45% for employers (2.9% total)
Additional Medicare tax of 0.9% applies to employees earning over $200,000 (single) or $250,000 (married filing jointly)

How Homebase simplifies payroll tax compliance

Manually tracking payroll tax limits can be time-consuming, but Homebase payroll makes it easy by:

Automatically adjusting Social Security withholdings when employees hit the cap
Ensuring compliance with IRS payroll tax regulations
Generating payroll reports to help track wages and tax payments
Providing automatic tax calculations to prevent costly mistakes

Make payroll tax compliance effortless—try Homebase today.

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