It is also the maximum amount of covered wages that are taken into account when average earnings are calculated in order to determine a worker's Social Security benefit.
[1][2] A person with $10,000 of gross income had $620.00 withheld as Social Security tax from his check and the employer sent an additional $620.00.
A person who earned a million dollars in wages paid the same $7,886.40 in Social Security tax (resulting in an effective rate of approximately 0.79%), with equivalent employer matching.
The employers who each paid $4,340 will not get a refund, since they are not aware that the employee overpaid in aggregate for the year.
The changes shown below applied In 2011 and 2012 when the rates were temporarily lowered to 4.2% for the employee (but remained at 6.2% for the employer).
In 2013, the employee rate returns to 6.2% for a 50/50 split with the employer and a higher Maximum Contribution.
The dip in the maximum OASDI contributions for 2011 and 2012 causes the 2013 rate to appear as a spike, when in fact it is a return to the levels imposed in the years 1990 through 2010.
As part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted on December 17, 2010, the employee Social Security tax rate is reduced from 6.2% to 4.2% for wages paid during the year 2011 and 2012.
The pension compensation nondiscrimination laws (Internal Revenue Code Section 401(a)(4)) require that qualified pension plans not discriminate in benefits, rights and features in favor of highly compensated employees (in 2007, the threshold is $100K of 2006 gross pay including bonuses and overtime).