The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in 2012 increases to $110,100 from $106,800, which was the wage base for 2009 through 2011. The $3,300 increase, which is about 3%, is due to an increase in average total wages.
The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers—one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).
The FICA tax rate for employees and employers normally is 7.65% each—6.2% for OASDI and 1.45% for HI. However, for 2011, the OASDI rate for employees is 4.2%.
For self-employed workers, the FICA tax normally is 15.3%—12.4% for OASDI and 2.9% for HI. However, for 2011, the self-employment tax rate is 13.3%: 10.4% for OASDI, reflecting the two percentage point drop in the OASDI rate for employees, plus 2.9% for HI. Self-employed workers can deduct one-half of their self employment tax above-the-line.
There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.
In an effort to stimulate the economy, the Administration has called for reductions in both the employer and employee Social Security tax rate for 2012. We will keep you posted as this legislations moves through Congress.