Jacob M. Leon, CFP^®

Social Security wage base rises to $102,000 for 2008

Social Security News Release, 10/17/2007

The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in 2008 rises to $102,000 from $97,500 in 2007, an increase of about 4.6%. The $4,500 increase is due to an increase in average total wages.

Observation: The increase from 2007 to 2008 is larger than the increase from 2006 to 2007 (when the wage base increased by only $3,300). It also marks the first time the wage base has exceeded $100,000.

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers—one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).

The FICA tax rate for employees and employers is 7.65% each—6.2% for OASDI and 1.45% for HI. For self-employed workers, the FICA tax is 15.3%—12.4% for OASDI and 2.9% for HI. There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.

Illustration : On a salary of $102,000 (or more), an employee and his employer each will pay $279 more ($6,324 instead of $6,045) in Social Security tax in 2008 than in 2007.

Illustration : A self-employed person with at least $102,000 in net self-employment earnings will pay $558 more ($12,648 instead of $12,090) in the Social Security part of the self-employment tax in 2008 than in 2007.

Observation: Self-employed workers deduct half of their self-employment tax above-the-line in arriving at adjusted gross income.

Observation: The FICA tax rates have remained unchanged since '90.

For more information on how this may affect your tax situation

call me at 713-333-7477

or email me at jacob@thefinancialfirm.com

 

Any discussion pertaining to taxes in our web site (www.thefinancialfirm.com) may be part of a promotion or marketing effort. As provided for in circular 230 of the IRS, advice related to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor.

Posted 11/16/07

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