Almost every year brings changes to Social Security benefits. And along with these benefit changes come changes in Social Security taxes. The Social Security Administration (SSA) has announced these changes for 2013:
- Monthly Social Security benefits will increase 1.7 percent starting January 2013.
- The maximum earnings subject to Social Security (OASDI) tax will increase to $113,700 in 2013, from $110,100 in 2012. The SSA says nearly 10 million workers will pay more FICA tax (Social Security and Medicare) as a result of this increase.
What Does This Mean to My Business?
Payroll tax calculations will need to be changed starting January 1, 2013, to stop the Social Security portion of an employee's FICA deduction when the employee's pay for the year reaches $113,700, the Social Security maximum. There is no maximum on the Medicare deduction; all wages are subject to Medicare tax.
How Do I Calculate FICA taxes?
Employers and employees must each contribute to FICA taxes (Social Security and Medicare), for a combined total payment of 15.3%. The Social Security amount (called OASDI) is 6.2% of gross pay (4.2% currently, with the payroll tax cut), while the Medicare amount is 1.45%.
Are Social Security Taxes for Self-Employed Individuals Also Capped?
If you are self-employed, you must pay Social Security and Medicare taxes (self-employment taxes), based on the profit of your business. The Social Security portion of these self-employment taxes remains the same as the OASDI tax and the taxable income limit is the same. For 2013, the Social Security portion of your self-employment income will be taxed up to $113,700.
Payroll Tax Cut Set to Expire
Another potential change that affects both employees and employers is that the 2% payroll tax cut on Social Security wages is set to expire January 1, unless the cut is extended by law before that date. With a presidential election coming up in just a few weeks, Congress is in recess, so any temporary or permanent cuts will have to wait until Congress re-convenes in November. We will all just have to sit tight on this one.
More about the Social Security Maximum