The Social Security Administration has announced an increase of $3,600 in the Social Security taxable wage base in 2013 from $110,100 to $113,700.
The wage cap is the maximum amount of compensation subject to tax under the Federal Insurance Contributions Act (FICA) - typically called Social Security tax. FICA imposes both Medicare tax and Social Security tax on compensation. Although the Social Security tax is capped, the Medicare portion applies to total earnings, with no limit.
The Social Security tax rate is 6.2% for both employers and employees. Under a special temporary provision it was 4.2% for individuals in 2012. The rate is scheduled to revert back to 6.2% in 2013 if there is no legislative action. The maximum total individual share of Social Security tax was capped at $4,624.20 in 2012, but is scheduled to be $7,049.40 in 2013, as a result of the return to the 6.2% rate and the higher wage cap.
Should you have any questions about this Tax Flash, please contact your Marcum Tax Advisor.