The Social Security Administration’s (SSA) Office of the Chief Actuary (OCA) has projected that the Social Security wage base will increase from $132,900 to $136,800 in 2020.
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 Social Security tax rate for employees and employers is 6.2% of a set maximum amount of the employee’s compensation (i.e., the wage base in effect for that year, as calculated under section 230 of the Social Security Act). The Medicare tax rate for employees and employers is 1.45%. There is no ceiling on the amount of compensation subject to the Medicare tax. Employees are also subject to a 0.9% additional Medicare tax on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).
The self-employment tax also consists of Social Security and Medicare tax. The Social Security tax rate is 12.4%, imposed on net earnings from self-employment up to the wage base in effect for that year. The Medicare tax rate is 2.9% of the taxpayer’s self-employment income, with the additional 0.9% Medicare tax imposed on self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return). The wage base in effect for 2019 is $132,900.
The SSA provides three kinds of forecasts for the Social Security wage base (intermediate, low cost, and high cost). The intermediate and the high forecast predicts an increase from $132,900 to $136,800. The low forecast predicts the Social Security wage base will increase to $137,100.
The SSA intermediate forecasts through 2028 are as follows:
2019 – $132,900
2020 – $136,800
2021 – $142,200
2022 – $149,100
2023 – $155,700
2024 – $162,300
2025 – $168,900
2026 – $175,800
2027 – $183,300
2028 – $191,100
Actual annual increases to the Social Security wage base are announced in October based on current economic conditions. As a result, the OCA’s forecasts are subject to change. Last year, the OCA predicted that the Social Security wage base would increase to $132,300 but it increased to $132,900.
The OCA is projecting that the Social Security trust fund will become insolvent in 2034. The OCA is projecting that the Disability Insurance (DI) trust fund will become insolvent in 2052.
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