Increase in Social Security Wage Base | Tax Tip of the Week | No. 127

You May Pay More in Social Security Taxes in 2012

For the first time since 2009 the earnings subject to Social Security is going up.  In 2009 and 2010, the first $106,800 in earnings was subject to this 6.20% tax (12.40% if self-employed).In 2011, the wage base was also $106,800 but the tax rate was reduced from 6.20% to 4.20% (10.40% if self-employed).In 2012, the wage base increases to $110,000.  It is unclear at the time of this writing if Congress will extend the reduction of the tax rate beyond the current two month extension.  We will keep you posted on that.The reason for the change is because the law does not allow an increase in the wage base for years when there is no cost-of-living increase for Social Security recipients.  Since Social Security checks will be higher in 2012, you may be subject to having a larger share of your income subject to the tax.Remember, there is no wage limit to the Medicare portion of your FICA tax.  The Medicare tax is 1.45% (2.90% if self-employed) regardless of your earned income.Sometimes, change is a bad thing.Let us know if you have any questions.

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