CCH Logo
Contact Us | CCH Online Store | Site Map    

  
navigation tabnavigation tab Home 
navigation tabnavigation tab About Us 
navigation tabnavigation tab Order Products 
navigation tabnavigation tab Press Center 
navigation tabnavigation tab Customer Service 
navigation tabnavigation tab Career Opportunities 
navigation tab
   HomePress CenterPress Releases
 
Press Releases
List By Date
Banking/Finance Institutions
Business Law
Corporate
Health Care and Entitlements
Human Resources
Securities
Tax
News Archives

For assistance with
stories, including
interviews with CCH
subject experts,
please contact
 
Eric Scott
847-267-2179
eric.scott@wolterskluwer.com

 

Contact Information

Leslie Bonacum
847-267-7153
mediahelp@cch.com
Neil Allen
847-267-2179
neil.allen@wolterskluwer.com

For High Earners, FICA Taxes Increase in 2006

(RIVERWOODS, ILL., October 19, 2005) – Highly-paid wage earners will see a moderate increase in the wage base on which Social Security taxes are due for 2006, according to CCH INCORPORATED (CCH), a leading provider of tax and payroll information and software (hr.cch.com). The 2006 wage base of $94,200 is $4,200 higher than the 2005 amount, and the maximum additional Social Security tax that might be collected on someone earning above the 2005 wage base is $260.40. This is the largest increase since 2002 in both dollars and in perc entage, and reflects the largest increase in national average wages since 2000.

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 2005 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.

“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,” said Avram Sacks, J.D., CCH Social Security law analyst.

“This means that high-earning, self-employed individuals may owe as much as $520.80 in additional self-employment tax in 2006,” Sacks said. “However, they can recoup some of this amount through a deduction on their federal income tax.”

About 11.3 million workers will be affected by the higher wage base in 2006.

Increase More Than Estimated

The wage base for 2006 is $1,200 more than the highest estimated increase published in the 2005 Annual Report of the Board of Trustees of the Federal OASDI Trust Funds issued in March of this year. The 2006 wage base reflects national average wages for 2004, the variable upon which the 2006 wage base formula is based. The 2004 national average wage index of $35,648.55 is 4.65 percent higher than the 2003 national average wage index, the highest increase since 2000.

“This is more than the 3.21 percent increase predicted in even the most liberal scenario by the Social Security trustees in their March report,” Sacks noted.

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 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

For the first time in three years, there will be an increase in the amount of wages a domestic worker can earn without being subject to FICA taxes. In 2006, you can pay a domestic worker, such as a maid or nanny, up to $1,500 without having to wrestle with federal withholding on wages.

About CCH INCORPORATED

CCH INCORPORATED is a leading provider of employment law and human resources information for attorneys and human resource professionals (hr.cch.com). Headquartered in Riverwoods, Ill., CCH was founded in 1913 and has served more than four generations of business professionals and their clients. CCH is a Wolters Kluwer company (www.wolterskluwer.com) and part of the Wolters Kluwer Legal Unit.

Wolters Kluwer is a leading multinational publisher and information services company. Wolters Kluwer has annual revenues (2004) of €3.3 billion, employs approximately 18,400 people worldwide and maintains operations across Europe, North America and Asia Pacific. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. Its depositary receipts of shares are quoted on the Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.

-- ### --

nb-05-93

       


   © 2024, CCH INCORPORATED. All rights reserved.   

  Back to Top | Print this Page   
spacer