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FICA Taxes Will Barely Increase for High Earners in 2004
(RIVERWOODS, ILL., October 17, 2003) – Highly-paid wage earners may scarcely
notice the projected increase in the wage base on which Social Security taxes
are due for 2004, according to CCH INCORPORATED (CCH), a leading provider of
tax and payroll information and software. The 2004 wage base of $87,900 is a
mere $900 higher than the 2003 amount, and the maximum additional tax that might
be collected on someone earning above the 2003 wage base is only $55.80.
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 2003
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
"This means that high-earning, self-employed individuals may owe as much
as $111.60 in additional self-employment tax in 2004," Sacks said. "However,
they can recoup some of this amount through a deduction on their federal income
About 9.2 million workers will be affected by the higher wage base in 2004.
Increase Less Than Estimated
The wage base for 2004 is $300 less than the lowest estimated increase published
in the 2003 Annual Report of the Board of Trustees of the Federal Old-Age, Survivors
and Disability Insurance (OASDI) Trust Funds issued in March of this year. The
2004 wage base reflects national average wages for 2002, the variable upon which
the 2004 wage base formula is based. The 2002 national average wage index of
$33,252.09 is 1 percent higher than the 2001 national average wage index.
"This is less than the 1.5-percent increase predicted in even the most
conservative scenario by the Social Security trustees in their March report,"
Consequences for Revenues, Benefits
"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 less now should receive less 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 2004, 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 $1,400 in 2004 without having to wrestle with
federal withholding on wages.
About CCH INCORPORATED
CCH INCORPORATED, Riverwoods, Ill., is a leading provider of Social Security,
tax, pension and benefits law information for attorneys, accountants and human
resources professionals. CCH is a Wolters Kluwer company. The CCH web site can
be accessed at cch.com and the CCH Human Resources
site is hr.cch.com.
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