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The Social Security Administration (SSA) announced that the taxable Social Security wage base is increasing from $113,700 to $117,000 in 2014. The new limit raises the level of income subject to the 6.2 percent Social Security tax rate. According to the SSA, about 10 million of the estimated 165 million workers who pay Social Security taxes will be affected by the change. The tax accountants at Doeren Mayhew, one of the nation’s top accounting firms, offers the following information on the Social Security and Medicare tax rates.
Under the Federal Insurance Contributions Act (FICA), employers, employees and self-employed workers pay two taxes on wage and self-employment income. One is the 6.2 percent tax for Old Age, Survivors and Disability Insurance (OASDI, otherwise known as the “Social Security tax”), and the other is the 1.45 percent Medicare tax rate. Taken together, the two taxes add up to 7.65 percent of wages or self-employment income.
For wage earners, the employer pays 7.65 percent of wages earned, and the employee pays an equal amount. Those who are self-employed pay both the employer and employee portions, though the rules allow for certain adjustments to be made.
The amount to which the Social Security portion of the FICA tax applies is capped at a certain specified level, or “wage base.” The wage base is adjusted annually to keep pace with overall wage increases. Under the new announcement, the Social Security tax will no longer apply once the taxpayer exceeds $117,000 in wages or self-employment income in 2014. As a result, even if the worker were to earn more than $117,000 in 2014, the amount of the obligation for the employer and the employee would be limited to $7,254 (each).
Unlike the Social Security tax, the 1.45 percent Medicare tax has no taxable maximum, so the $117,000 cap will not apply to that portion of the tax.
In fact, the 1.45 percent Medicare tax rate increases by 0.9 percent when wages exceed certain levels — $250,000 for joint returns and $200,000 for unmarried filers. However, this 0.9 percent increase is on the employee side only. The employer is only responsible for the 1.45 percent employer portion of the tax.
For more information on the Social Security and Medicare taxes and their impact on you, contact one of Doeren Mayhew’s tax accountants in Michigan, Houston or Ft. Lauderdale.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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