The Social Security Administration has announced an increase in the
Social Security taxable wage base in 2013 from $110,100 to $113,700. The
$3,600 increase is slightly more than the $3,300 increase from 2011 to
2012. The cap was just $106,800 from 2009 to 2011, as inflation ground
to a halt during the economic downturn.
The wage cap is the maximum amount of compensation subject to tax under the Federal Insurance Contributions Act (FICA) for old age, survivors and disability insurance (OASDI) — typically called Social Security tax. FICA imposes both Medicare tax and Social Security tax on compensation received for services at matching employer and employee rates (with self-employed taxpayers effectively paying both shares on self-employment income). Although the Social Security tax is capped, the Medicare portion of FICA tax applies to total earnings, with no limit on the amount.
The Social Security tax rate is generally 6.2% for both employers and employees, but under a special temporary provision it is only 4.2% for individuals in 2012. The rate is scheduled to revert to 6.2% in 2013 without legislative action. The maximum total individual share of Social Security tax is capped at $4,624.20 in 2012 but is scheduled to jump to $7,049.40 in 2013, with a return to the 6.2% rate and the higher wage cap.
S-corporation shareholders should see their tax advisor to understand how this may impact their compensation package.
Kenneth Hoffman counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday from 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.
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