The Social Security Administration (SSA) recently announced an increase to the maximum amount of wages subject to the old age, survivors, and disability insurance (OASDI) tax. The wage threshold for these taxes will increase to $142,800 in 2021, up from $137,700 in 2020. The OASDI tax rate is 6.2%, Self-employed freelancers will pay these taxes at a 12.4% rate up to the wage threshold limit, to a maximum of $17,707.20 in OASDI tax. It’s an increase of nearly $700 for high-earning freelancers.
The SSA also announced that recipients of Social Security benefits will receive a 1.3% cost-of-living adjustment, and that the earnings test for the amount of income that benefit recipients can receive without having their benefits reduced each year is $18,960 before full retirement age, and the limit taxpayers can earn in the year they reach full retirement age is $50,520. Both have increased from 2020.
It is important to note that the Medicare hospital insurance tax of 2.9% for the self-employed has no wage limit.
The self-employment tax obligations for freelance business owners can really add to your tax bill. For many freelancers, the amount paid in self-employment tax (the combination of OASDI and the Medicare hospital tax, currently assessed at