The Office of the Chief Actuary of the Social Security Administration provides projected guidance each May for what we can expect in changes to the wage base for social security taxes. In their 2013 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, the projection for the wage base in 2014 is estimated at $115,500. That is up 1.7% from the official 2013 wage base of $113,700.
While the report is merely an estimate of what employers and employees can expect for 2014, it is the only guidance we will get until the official numbers are released in October. Since October is well into budget season for many employers, this report is the best projection for 2014 budgeting and forecasting.
The report isn’t always spot on with the October numbers as the intervening months can change the indices used by the Social Security Administration. However, the report has historically been a reasonable and conservative estimate of the wage base.
FICA taxes are comprised of the Old Age Survivors & Disability Insurance component (OASDI) and the Hospital Insurance Tax (HI). The OASDI rate is 6.2% each for the employer and employee on wages up to the social security wage base while the HI rate is 1.45%. The HI tax, often referred to as the Medicare tax, is not capped on a wage limit. The Affordable Care Act added an additional layer of 0.9% as the new Additional Medical Tax for wages over $200,000 for single and head of household filers, $250,000 for joint filers and on wages in excess of $125,000 for married filing separately. This brought the combined HI tax for higher wage earners to 3.8%. You may recall that the Affordable Care Act also added a 3.8% tax on investment income as the HI taxes are only applied to earned income.
The projected 2014 rates will mean that higher income individuals will contribute $7,161 in OASDI taxes up from $7,049.40. Keep in mind that this is only the OASDI tax and it is matched by employers.
Self-employed persons pay both the employer and employee portions of the OSADI and HI taxes. They do however get to deduct the employer portion as a business expense. The combined rates for OASDI and HI taxes are 15.3% up to the same wage base. A self-employed person is projected to have to pay a combined $17,671.50 into the trust funds on their first $115,500 of income in 2014.
Another interesting point is that the report also predicts future increases in the OASDI wage base. The Office of the Chief Actuary predicts in that the wage base will need to increase in future years by 5.5%. Those preparing longer range forecasts are advised to fold in this additional employer expense.