New 10/21/04

SSA News Release, October 19, 2004

The Social Security Administration (SSA) has announced that the 2005 wage base for determining the maximum amount of earnings subject to the Social Security (OASDI) tax will increase $2,100 to $90,000, up from $87,900. The increase from 2003 to 2004 was $900, much smaller than the increase from 2004 to 2005. The Federal Insurance Contributions Act (FICA) imposes a second tax on employers, employees, and self-employee workers, and the other is for Hospital Insurance (HI, or Medicare tax), which has no wage cap. The total FICA tax rate, 7.65 percent (6.2 percent for OASDI and 1.45 percent for Medicare) remains the same for 2005. The maximum OASDI tax that will be withheld from those earning more than $90,000 in 2005 will be $5,580 in 2005. The amount of tax is double for self-employed individuals.

Monthly Social Security and Supplemental Security Income benefits cost of living adjustment (COLA) is 2.7% for 2005 (as compared to 2.1% for 2004) beginning January 2005. The amount of benefits subject to tax remains pegged to a base amount that is not inflation adjusted (generally $25,000 – single, $44,000 – married joint, $0 – married separate, or $34,000 – all others) under Code Sec. 86(c).

The nanny tax on cash remuneration paid by an employer for domestic service in the employer’s private home is not FICA wages if the amount paid during the year is less than $1,400 (this is the same amount for 2003 and 2004).