FICA Taxes Increase for Some in 2006
Highly paid wage earners will notice a moderate increase in the wage base on which Social Security taxes are due in 2006 according to a statement from CCH Incorporated. An estimated 11.3 million workers will be affected by the wage base increase.
CCH reports that the 2006 wage base of $94,200 is $4,200 higher than the 2005 amount. The maximum additional Social Security tax collectible from someone earning above the 2005 wage base is $260.40. According to CCH it is the largest increase in both dollars and percentages since 2002 and reflects the largest increase in national average wages 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,” says Avram Sacks, J.D., CCH Social Security law analyst.
The tax increase will show up in the amount of Federal Insurance Contribution Act (FICA) tax deducted from the paychecks of those earning more than the wage base. Although the tax rate for the Old-Age, Survivors and Disability Insurance (OASDI) portion of FICA has been 6.2 percent since 1990, the amount of wages subject to the tax can, and usually does, increase each year, based on the national wage index. The tax rate for the Medicare portion of FICA is 1.45 percent and applies to every dollar of earnings. All of these taxes paid by employees are matched by identical amounts paid by insurers.
“Taxes for self-employed individuals use the same earnings base, but the rates double those of employees, since the self-employed must also pay the ‘employer’ portion of the taxes,” Sacks explains in a prepared statement. “This means that high-earning, self-employed individuals may owe as much as $520.80 in additional self-employment tax in 2006. However, they can recoup some of this amount through a deduction on their federal income tax.”
The amount of wages a domestic worker can earn without being subject to FICA taxes has also increased for the first time in three years. In 2006, domestic workers such as maids or nannies can be paid up to $1,500 without having to wrestle with federal withholding on wages CCH reports.