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PrintAsk Alice About Social Security Taxes for 2009
By Alice Magos, Online Advice Columnist
Dear Alice,
What's this I just heard about my Social Security taxes going up yet again in 2009?
Noend Insight
Dear Noend,
Well, you're partly right. The amount of Social Security tax you'll be paying for 2009 may be higher than for 2008, depending on how much you make, but the actual tax rate really hasn't changed a bit. An estimated 164 million workers will pay Social Security tax in 2009, according to the Social Security Administration. About 11 million of them will pay higher taxes as a result of the increase in the taxable maximum.
The Social Security Administration did indeed conduct its annual unveiling of the increased maximum amount of earnings subject to Social Security (FICA) and self-employment (SECA) taxes. The wage base for the Social Security portion will rise to $106,800 for 2009, up $4,800 from last year. This increase in the wage base is the largest in dollars and cents ever. However, as a percentage, the 4.7 percent increase is only slightly higher than the average increase of 4.1 percent during the 20 years that the 6.2 percent Social Security tax rate has been in effect.
The 2009 wage base reflects national average wages for 2007, the variable upon which the 2009 wage base formula is based. The 2007 national average wage index of $40,405.48 is 4.6 percent higher than the 2006 national average wage index.
So if you're one of the 11 million or so folks who earn more than $106,800 you will be paying more FICA tax to the maximum tune of $297.60 over 2008. (Remember that there's still no cap on the amount of earnings subject to the separate Medicare tax.)
But the combined rates remain the same in 2009 as in 2008: 7.65 percent for employees and 15.30 percent for self-employed individuals. The 7.65 percent rate is the combined Social Security and Medicare rate. The Social Security portion is 6.20 percent on wages up to the maximum taxable cap ($106,800 for 2009), which will require both employer and employee to pay a maximum Social Security tax of $6,621.60 each. The Medicare portion is still 1.45 percent each, again--with no wage cap.
Although the impact on self-employed individuals is greater (because they pay these taxes at twice the rate of employees--12.4 percent for Social Security and 2.9 percent for Medicare, for a combined rate of 15.3 percent), a self-employed individual can deduct half of any federal self-employment taxes.
The bottom line is, if you earn the wage base, Social Security tax alone will cost you $297.60 more than the prior year if you're an employee--or $595.20 more if you're self-employed, half of which is deductible. And, as a practical matter, if you're making that much money, nobody's gonna have a tag day for you.
The change is much more dramatic on the receiving end. The COLA (cost of living adjustment) for 2009 for approximately 57 million Social Security recipients will be 5.8 percent to keep pace with inflation, the largest since 1982!
The increased wage base won't cause a catastrophic tax increase for you, so I won't be sending you any therapeutic chicken soup...but if you have another question or gripe, be sure to Ask Alice, and if it merits more sympathy, rest assured I'll lavish it upon you.
