Free Consultation

1-866-998-2545

Social Security Tax Limit
 
FICA (Federal Insurance Contributions Act) tax is a combination of a 6.2% social security tax and a 1.45% Medicare tax. The social security tax is evaluated on wages up to $87,000; the Medicare tax is assessed on all wages. Employers and employees are both liable for FICA taxes on the following rates:

1. Social Security – tax rate is 6.20% your income for old age, survivor, and disability insurance through Social Security, up to a maximum income of $87,000 for 2003 and $87,900 for 2004 with a maximum tax of $5,394. The income ceiling rises every year.

2. Medicare – tax rate is 1.45% of all your wages, without any income limit, for hospital insurance under Medicare.

There is no maximum value on the amount of wages subject to the 1.45 percent Medicare payroll tax. However, Medicare modifications are under deliberation in Congress, and program changes--including the payroll-tax provisions- -are possible.

Self-employed individuals pay a self-employment tax which is the equivalent of FICA tax. They will pay a 12.4% OASDI tax (the old age, survivors, and disability insurance tax) on the first $87,000 of self-employment income. A 2.9% Medicare tax is imposed on all net self-employment income for 2003. Fifty percent of the self-employment tax paid is deductible.

The earnings limit for retirees under age 65 is $11,520. Social security benefits will be reduced $1 for every $2 of earnings above this limit. There is no earnings limit for individuals aged 65 and above.

The Social Security Administration announced last October 19, 2004 a rising cost-of-living adjustment for the Social Security taxable wage limit. The amount of earnings taxable for Social Security (Old Age, Survivors and Disability Insurance, or OASDI) will increase from $87,900 to $90,000 for the year 2005. However, the tax rate will remain unaffected from year 2004 to 2005, at 6.2%. The maximum Social Security tax payable by an employee with this increase in taxable wages will be $5,580.00, an increase of $130.20 from the current maximum tax of $5,449.80. Employers will continue to equal the employee's contribution.

With regards to Medicare tax, there will be no maximum employee contribution amount for Medicare tax in 2005 with the removal of the taxable wage limit for the Medicare tax in 1993 by the Omnibus Budget Reconciliation Act for 1994 and years thereafter. All covered wages will be subject to Medicare tax at the same 1.45% rate as in 2004. Employers will continue to equal employee Medicare contributions, using the same tax rate and taxable wage amounts as the employees.

The combined rate of 7.65% (6.20% for Social Security and 1.45% for Medicare) thus continues without change for the year 2005. This tax rate was last changed in 1990, when it went from 7.51% to 7.65%.
List of Cities and Counties in California