Final answer:
In 2016, the maximum wage base for Social Security taxes was $118,500. Social Security taxes are applied at a rate up to a certain income, which is adjusted for inflation annually, while Medicare taxes have no wage limit.
Step-by-step explanation:
The maximum wage base for Social Security taxes in 2016 was $118,500. The wage base is the maximum amount of earnings on which the Social Security tax is imposed. Social Security payroll taxes are set at a rate of 12.4%, which is applied to income up to this wage limit. In contrast, Medicare payroll taxes are fixed at 2.9% and have no upper limit, meaning they are applied to all levels of income. This wage base typically increases each year based on the rate of inflation to ensure that the increase in Social Security tax base corresponds to the increase in benefit levels.