Jacob M. Leon, CPA/PFS 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

 

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Posted 11/16/07