|List By Date|
|Health Care and Entitlements|
For Top Earners, Payroll Tax Takes Bigger Bite Next Year
(RIVERWOODS, ILL., October 23, 2001) Despite cuts in income tax rates
scheduled for next year, payroll taxes for some highly-paid wage earners just went up by
$279 for 2002, according to CCH INCORPORATED (CCH), a leading provider of tax and payroll
information and software. This is the result of a projected increase in the wage base on
which Social Security taxes are due, from $80,400 in 2001 to $84,900 in 2002.
The tax increase will show up in the amount of FICA (Federal Insurance Contribution
Act) tax deducted next year from the paychecks of those earning above the 2001 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
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
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 $558
in additional self-employment tax in 2002," Sacks said. "However, they can
recoup some of this amount through a deduction on their federal income tax."
About 10.5 million workers will be affected by the higher wage base in 2002.
"The wage base also is 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."
For 2002, there will be no 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 2002 without having to wrestle with federal withholding on wages.
About CCH INCORPORATED
CCH INCORPORATED, Riverwoods, Ill., is a leading provider of health and human resources
information, including Payroll Management Guide, Pension Plan Guide, Employee Benefits
Management, Social Security Reporter and Unemployment Insurance Reports. CCH
also provides tax and business law information in print and electronic form for
accounting, legal and health care professionals. CCH is a wholly owned subsidiary of
Wolters Kluwer North America. The CCH web site can be accessed at www.cch.com and the CCH Human Resources site
-- ### --