IRC section 3121(a) provides that wages include all remuneration for employment, whether paid in cash or in some other form, unless specifically excluded by statute. Examples of wages for social security and Medicare purposes include salaries, fees, bonuses, prizes, awards and commissions. It is immaterial whether the payments are based on the hour, week, month, year, piecework, percentage of revenue, or other system.
The Social Security Administration establishes the maximum amount of wages subject to the social security tax per year. For 2018, this amount is $128,400. The amount is adjusted each year. The amount in 2017 was $127,200. (Since 1994, there has been no wage base limit for Medicare tax.)
Note: For discussion purposes, the term FICA (Federal Insurance Contributions Act) will be used to identify both portions of the tax, social security (OASDI) and Medicare. When eligible, OASDI is withheld at a rate of 6.2% and Medicare at 1.45% for a total of 7.65% withholding rate.
Starting in 2013, the Affordable Care Act raised the employee portion for the Medicare tax rate for wages that exceed $200,000 in a calendar year. Last calendar year, employees contributed Medicare taxes at a rate of 1.45% on all wages, and the employer matched that amount. The new Medicare tax rate for employees was raised to 2.35% for the amount that exceeds $200,000. The employee portion that does not exceed $200,000 will remain at 1.45%. The employer portion remains at 1.45% on all wages.