Social Security Taxes: Your paycheck may show yet another increase
About 11 million workers will be dunned for an additional $204.60 in Social Security taxes during 2007, thanks to the Social Sec-urity Administration’s little-noticed increase in the maximum amount of wages subject to Federal Insurance Contributions Act (FICA) levies. The tax hike shows up in the amount of FICA withholdings in the paychecks of those whose wages are above the new wage base. Congress in the mid-1970s enacted legislation authorizing the adjustment to kick in automatically.
There has been no change in the 7.65 percent FICA tax rate for both employees and employers. However, the latest mandated increase of $3,300 (to a maximum of $97,500 in 2007 from $94,200 in 2006) in the wage base for the 6.20 percent Social Security benefits tax triggered an increase of up to $204.60 (6.20 percent of $3,300).
The 7.65 percent FICA tax has two components: the 6.20 percent rate for the Social Security benefits portion—the old age, survivors and disability insurance fund—and the 1.45 percent rate for the Medicare fund, the federal hospital insurance program for the elderly. In 1993, Congress decided to do away with the cap on Medicare’s wage base. That is why withholding for Social Security during 2007 stops at $97,500, whereas those who earn above $97,500 must pay Medicare taxes on every dollar of their salaries, wages, bonuses, commissions, vacation pay, etc., notes CCH Inc., the Riverside, Ill., publisher.
For several years now, FICA taxes have exacted a bigger bite than federal income taxes for many middle-income earners.