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FICA Taxes To Increase For High Earners In 2003
(RIVERWOODS, ILL., October 24, 2002) – Payroll taxes for some
highly-paid wage earners just went up by $130.20 for 2003, 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 $84,900
in 2002 to $87,000 in 2003.
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 2002 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.
"This means that high-earning, self-employed individuals may
owe as much as $260.40 in additional self-employment tax in
2003," said Avram Sacks,Social Security analyst in CCH's Human
Resources Group. "However, they can recoup some of this amount
through a deduction on their federal income tax."
About 9.7 million workers will be affected by the higher wage base
Could Have Been Worse
As painful as the additional withholding might be, it could have
been worse if earlier estimates had held true.
The $87,000 wage base for 2003 is significantly lower than the
estimate published in the 2002 Annual Report of the Board of Trustees
of the Federal Old-Age, Survivors and Disability Insurance Trust Funds
issued in March of this year. The 2003 wage base reflects national
average wages for 2001, the variable upon which the 2003 wage base
formula is based. The 2001 national average wage index of $32,921.92
is 2.38 percent higher than the 2000 national average wage index.
"This is much less than the 5.3 percent increase predicted in
the most conservative scenario by the Social Security trustees in
their March report," Sacks noted.
Consequences for Revenues, Benefits
The lowered wage base will mean that Social Security will take in
fewer revenues next year than expected, but it means that obligations
to future retirees will be lower, as well.
"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 2003, 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 $1,400 in 2003
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, 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 cch.com
and the CCH Human Resources
site is hr.cch.com.
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