Social Security wage base increases to $117,000 for 2014

The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in 2014 increases to $117,000 from $113,700, which was the wage base for 2013. The $3,300 increase, which is about 2.9%, is due to an increase in average total wages.

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).

For 2014, the FICA tax rate for employers is 7.65% each—6.2% for OASDI and 1.45% for HI. For 2014, an employee pays:

a. 6.2% Social Security tax on the first $117,000 of wages (maximum tax is $7,254.00 [6.2% of $117,000]), plus

b. 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus

c. 2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return). (Code Sec. 3101(b)(2))

For 2014, the self-employment tax imposed on self-employed people is:

12.4% OASDI on the first $117,000 of self-employment income, for a maximum tax of $14,508.00 (12.40% of $117,000); plus
2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a separate return), (Code Sec. 1401(a), Code Sec. 1401(b)), plus
3.8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return). (Code Sec. 1401(b)(2))

There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.

If you have questions, contact matthew@personpa.com or todd@personcpa.com.