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Leslie Bonacum
Neil Allen

For Top Earners, Payroll Tax Takes Bigger Bite Next Year

(RIVERWOODS, ILL., October 24, 2000) - If you are a highly paid wage earner, your taxes just went up by $260.40 for 2001, according to CCH INCORPORATED (CCH), a leading provider of payroll, benefits and tax law information and software. This is the result of a projected increase in the wage base on which Social Security taxes are due, from $76,200 in 2000 to $80,400 in 2001.

The tax increase will show up next year in the amount of FICA (Federal Insurance Contribution Act) tax deducted from the paychecks of those earning above the 2000 wage base. Although the tax rate for the Old Age, Survivors and Disability Insurance (OASDI) portion of FICA has held steady at 6.2 percent since 1990, the amount of wages subject to the tax can, and usually does, increase each year, based on a national wage index. The taxes paid by employees are matched by identical amounts paid by employers into the Social Security system.

The tax rate for the "Hospital Insurance," or Medicare portion of FICA, is 1.45 percent, and it applies to every dollar of earnings. This amount also is matched by employers.

Avram Sacks, JD, Social Security analyst with CCH, noted that taxes for self-employed individuals use the same earnings base, but the rates are double those of employees, since the self-employed must also pay the "employer" portion of the taxes.

"This means that high-earning, self-employed individuals may owe as much as $520.80 in additional self-employment tax in 2001," Sacks said. "However, they can recoup some of this amount through a deduction on their federal income tax."

About 10.9 million workers will be affected by the higher wage base in 2001. "The wage base is also a benefits base," Sacks noted. "Only earnings up to the wage base are considered in calculating Social Security benefits. As a result, those who pay more now should receive more later. Some private pensions also use the amount of ‘covered compensation’ - that is, compensation up to the wage base - in calculating their benefits as well."

Domestic Workers

In 2001, there will be a $100 increase in the amount of wages a domestic worker can earn without being subject to FICA taxes. You can pay a domestic worker, such as a maid or nanny, up to $1,300 in 2001 without having to wrestle with federal withholding on wages.


CCH INCORPORATED, headquartered in Riverwoods, Ill., is a leading provider of Social Security, pension and benefits law information for attorneys, accountants and human resources professionals, including the Social Security Reporter, Unemployment Insurance Reports, Payroll Management Guide, Pension Plan Guide and Employee Benefits Management. CCH also provides tax and business law information in print and electronic form for accounting, legal and healthcare professionals. CCH is a wholly owned subsidiary of Wolters Kluwer North America. The CCH web site can be accessed at and the CCH Human Resources Group site is

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