While we’re on the topic of payroll taxes, I thought it would be worth taking a closer look at the Social Security wage base.
As previously noted, FICA-OASDI taxes are calculated as 6.2% of your gross compensation up to the Social Security contribution and benefit base (a.k.a. the “wage base“).
Beyond this amount, you pay the Medicare portion (FICA-HI; calculated as 1.45% of gross compensation) but not Social Security (FICA-OASDI) taxes.
The Social Security wage base is pegged to the national average wage index and it (typically) increases annually. What follows is a recent history of the wage base.
So, in 2013, you will be subject to payroll taxes of 6.2% + 1.45% = 7.65% on gross compensation up to $113,700. Beyond that, the FICA-OASDI taxes drop away and you’ll pay just the Medicare portion.
Related: If you’re interested in Social Security planning, be sure to check out Mike Piper’s excellent book “Social Security Made Simple.”
Something to be aware of: If you work multiple jobs, your employers might end up over-withholding since one doesn’t know what the other is doing. This isn’t a huge deal, though, as you can claim a refund at tax time.
Note that there is now an additional 3.8% Medicare surtax on unearned (investment) income in excess of $200k/$250k modified adjusted gross income (MAGI) for single/joint filers. But that’s a topic for another day…