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 2014:
- Monthly Social Security benefits will increase 1.5 percent starting January 2014.
- The maximum earnings subject to Social Security (OASDI) tax will increase to $117,000 in 2013, from $113,700 in 2013.
What Does This Mean to My Business?
Payroll tax calculations will need to be changed starting January 1, 2014, to stop the Social Security portion of an employee's FICA deduction when the employee's pay for the year reaches $117,000, 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, while the Medicare amount is 1.45%.
What about the new additional Medicare Tax?
Medicare taxes are not capped; employees must pay Medicare tax on all income. As of January 1, 2013, higher-income employees must pay an additional amount of Medicare tax (0.9%) on income above a specified level, depending on the individual's tax status. Employers must start withholding the additional Medicare tax when the employee's income reaches $200,000, regardless of tax status. Read more about how the additional Medicare tax affects your payroll accounting.
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 2014, the Social Security portion of your self-employment income will be taxed up to $117,000. The Medicare portion will be taxed the same way as for employees, including the additional Medicare tax.
More about FICA taxes (Social Security/Medicare)