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Social Security Tax Limit Law

Under the Social Security Tax Limit Law, people who are receiving Social Security benefits who have not reached full retirement age are entitled to receive all of their benefits as long as their earnings are under the following limits: 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. In 2005 under the Social Security Tax Limit Law, the full retirement age is 65 and 6 months. The full retirement age will increase gradually each year until it reaches age 67 for people born in 1960 or later.

The Social Security Tax Limit Law provides that the employer is subject to the same social security tax rate and wage base limits as the employee. The wage base limit for 2004 is $87,900. When the employee reaches their limitation, the employer also reaches the limitation and no longer has to pay social security taxes for that employee. There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax.

Every year, the Internal Revenue Service makes an inflation adjustment for contributions workers must make to the Social Security system. Under the Social Security Tax Limit Law, Social Security taxes are used to pay for all Social Security benefits. In addition, a portion of your taxes is used to pay for part of your Medicare coverage. General tax revenues, not Social Security taxes, are used to finance the Supplemental Security Income (SSI) program. If you are working for someone else, you and your employer pay taxes for Social Security and Medicare.

However, if you are self-employed, as stated in the Social Security Tax Limit Law you pay 15.3 percent of your taxable income into Social Security, up to $61,200. However, there are special deductions you can take when you file your tax return that are intended to offset your tax rate.

The Social Security Administration announced of a rising cost-of-living adjustment for the Social Security taxable wage limit. The amount of earnings taxable under the Social Security Tax Limit Law 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. Social Security Tax Limit Law provides that the employers will continue to equal the employee's contribution.
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