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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
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
$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."
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.
About CCH INCORPORATED
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 www.cch.com and the CCH Human Resources Group
site is http://hr.cch.com.
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