What it means
Payroll taxes are not always charged on every dollar of pay: some are charged only up to a set limit, which is the wage base, set by law or by an agency and usually changing each year. The Social Security Administration calls its limit the contribution and benefit base, saying the program limits the earnings subject to tax each year, that the same limit applies when earnings are used to compute benefits, and that it changes with the national average wage index.
The IRS says the 2026 social security wage base limit is $184,500, with a 6.2% rate for each of the employer and the employee. Medicare is different: the IRS says there is no wage base limit for Medicare tax, which is 1.45% each for the employee and employer.
A 0.9% Additional Medicare Tax applies to wages above $200,000 in a calendar year, and the employer withholds it without a match. Federal unemployment tax has a much smaller base.
IRS Form 940 instructions say FUTA tax applies to the first $7,000 paid to each employee in a calendar year, after exempt payments, and that $7,000 is called the FUTA wage base, with a 6.0% rate that has a credit of up to 5.4% for most employers. Not every base moves the same way, since the Social Security base follows the national average wage index while the IRS instructions give the FUTA base as a flat $7,000.
The cap matters for planning, because high earners stop paying the capped tax partway through the year and their take-home pay can rise late in the year. For employers, the payroll bill falls as each employee crosses the cap.
Other countries use similar ideas under other names, such as earnings ceilings for social insurance. Rates and limits differ, so always check the current year's figures from the official source.
In practice
Real-world examples.
Example
A fictional employee earns $250,000 in 2026. Social Security tax applies only to the first $184,500, so the employee's share is $184,500 x 6.2% = $11,439. The employer pays the same, and no more Social Security tax is due on the remaining $65,500.
Example
A fictional employer pays an assistant $3,000 a month. FUTA applies to the first $7,000, which is reached in the third month, since two months give $6,000 and the third month takes cumulative pay to $9,000. After that, no further FUTA is due for that employee in the year.
Example
A fictional employee earns $150,000. All of it is subject to Social Security and Medicare because it is below the $184,500 cap. Medicare tax is $150,000 x 1.45% = $2,175, with no cap and no Additional Medicare Tax, since pay is under $200,000.
Formula
Calculation
Taxed wages = Smaller of (pay to date, wage base). Tax = Taxed wages x Rate.
Social Security: $184,500 x 6.2% = $11,439 per side in 2026. FUTA: $7,000 x 0.6% = $42 at the net rate after the maximum 5.4% credit (6.0% - 5.4% = 0.6%).
Worked example: an employee paid $20,000 a month reaches the Social Security cap when cumulative pay passes $184,500, which is 184,500 / 20,000 = 9.2 months, so during month 10. By the end of month 9, $180,000 has been taxed, so month 10 taxes only the remaining $184,500 - $180,000 = $4,500, a tax of $4,500 x 6.2% = $279, and nothing is taxed from month 11.Case study
Seen in the real world.
This case study is fictional and illustrative. A small firm pays Lena 20,000 a month, or 240,000 a year. Her Social Security tax stops in the tenth month, since 184,500 / 20,000 = 9.2, so the cap is reached during month 10. Before that, her paycheck loses 6.2%, or 1,240, to Social Security each month. After the cap, the 1,240 stops, and her net pay rises.
The firm also stops paying its matching 1,240. Medicare continues all year at 1.45%, or 290 a month. Her pay passes 200,000 in month 11, so the employer then begins to withhold the 0.9% Additional Medicare Tax. She checks her payslips and her year-end tax forms for the correct caps. She also plans her savings with the late-year pay rise in mind.
Watch out
Common mistakes.
- Using last year's limit, when the Social Security base changes every year.
- Assuming every payroll tax has a cap, when Medicare has none.
- Mixing up the Social Security base with the FUTA base, when one is 184,500 and the other 7,000.
Questions
People also ask.
What is a taxable wage base?
It is the maximum amount of pay that a given payroll tax applies to in a year. After pay passes it, that tax stops. Social Security and FUTA have one.
What is the 2026 Social Security wage base?
The IRS gives it as $184,500 for 2026. The rate is 6.2% each for employer and employee. The limit changes each year.
Does Medicare have a wage base?
No. The IRS says Medicare has no wage base limit. A 0.9% Additional Medicare Tax applies to wages above $200,000.
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