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Jun 26

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Social Security Taxes Just Keep Going Up!

Social Security taxes, as they are commonly referred to, are made up of two taxes assessed on employees, employers and those who are self-employed by the Federal Insurance Contributions Act (“FICA”).  The first of the taxes is the Old-Age, Survivors, and Disability Insurance (OASDI) aka Social Security Tax and the second is the Hospital Insurance (HI) aka Medicare Tax.  The following table summarizes the rates for each of the taxes.

Employee

Employer

Self-Employed

OASDI

6.20%

6.20%

12.40%

HI

1.45%

1.45%

2.90%

Total FICA

7.65%

7.65%

15.30%

There is no cap on income for taxes related to the HI or Medicare portion of FICA.  The OASDI portion is capped with the wage base changing annually.  The 2013 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Fund estimates that the wage base for 2014 will be $115,500.  This estimate is released each May with the final number being released in October.  The Trustees provide three estimates for review, Intermediate, Low-Cost and High Cost.  The following table shows the historical wage base for the past 10 years.For those who make more than $200,000 to $250,000, employees and employers must each pay an additional 0.9% for HI tax and self-employed earners must pay 1.8%.

Year

Wage Base

% Increase

2004

$87,900

1.0%

2005

$90,000

2.4%

2006

$94,200

4.7%

2007

$97,500

3.5%

2008

$102,000

4.6%

2009

$106,800

4.7%

2010

$106,800

0.0%

2011

$106,800

0.0%

2012

$110,100

3.1%

2013

$113,700

3.3%

Average

2.7%

The next table shows that Trustees’ estimate of the wage base out until 2022.

Year

 Intermediate

% Increase

 Low-Cost

% Increase

High Cost

% Increase

2014

$115,500

1.6%

$115,500

1.6%

$115,500

1.6%

2015

$118,500

2.6%

$120,000

3.9%

$116,700

1.0%

2016

$123,600

4.3%

$126,300

5.3%

$120,600

3.3%

2017

$130,500

5.6%

$132,600

5.0%

$126,600

5.0%

2018

$137,700

5.5%

$139,500

5.2%

$133,800

5.7%

2019

$144,900

5.2%

$145,800

4.5%

$141,900

6.1%

2020

$152,100

5.0%

$151,500

3.9%

$150,600

6.1%

2021

$159,000

4.5%

$157,200

3.8%

$156,700

4.1%

2022

$165,600

4.2%

$162,900

3.6%

$167,400

6.8%

Average

4.3%

4.1%

4.4%

As can been seen in the table above, the average annual increase in the wage base under any of the scenarios is above 4%.  This means that employee, employers and those that are self-employed can expect to be paying increasing amounts each year for OASDI taxes for the foreseeable future.

About the author

Anand Khemlani

I am a founding member of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA), Accredited in Business Valuation (ABV), a Certified Fraud Examiner (CFE) and am a licensed Real Estate Broker. I regularly serve as an expert witness involving results of my forensic accounting assignments and damage analyses. My resume is available on Fulcrum's website

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