Project BACKGROUND
Social Security solvency has been a topic of significant debate in recent years. As the population ages, life expectancy increases, and fewer workers fund the PAYGO system, this topic is likely to remain important until it's solved. This project is designed to increase the depth of your understand¬ing of how Social Security taxes are imposed and how to research Social Security insurance and retirement benefits.
Take a moment to review the tables below, which you studied in Assignment 19. These are the wage bases to which the OASDI component of Social Security applies-for the 2009 calendar and tax year, 6.2% of $106,500 (7.65%, up to this wage base ceiling, for both OASDI and Medicare).
Social Security Wage Base through the Years
|
Tax Year
|
Wage Base
|
Tax Year
|
Wage Base
|
Tax Year
|
Wage Base
|
Tax Year
|
Wage Base
|
|
1937-50
|
$3,000
|
1977
|
$16,500
|
1988
|
$45,000
|
1999
|
$72,600
|
|
1951-54
|
$3,600
|
1978
|
$17,700
|
1989
|
$48,000
|
2000
|
$76,200
|
|
1955-58
|
$4,200
|
1979
|
$22,900
|
1990
|
$51,300
|
2001
|
$80,400
|
|
1959-65
|
$4,800
|
1980
|
$25,900
|
1991
|
$53,400
|
2002
|
$84,900
|
|
1966-67
|
$6,600
|
1981
|
$29,700
|
1992
|
$55,500
|
2003
|
$87,000
|
|
1968-71
|
$7,800
|
1982
|
$32,400
|
1993
|
$57,600
|
2004
|
$87,900
|
|
1972
|
$9,000
|
1983
|
$35,700
|
1994
|
$60,600
|
2005
|
$90,000
|
|
1973
|
$10,800
|
1984
|
$37,800
|
1995
|
$61,200
|
2006
|
$94,200
|
|
1974
|
$13,200
|
1985
|
$39,600
|
1996
|
$62,700
|
2007
|
$97,500
|
|
1975
|
$14,100
|
1986
|
$42,000
|
1997
|
$65,400
|
2008
|
$102,000
|
|
1976
|
$15,300
|
1987
|
$43,800
|
1998
|
$68,400
|
2009
|
$106,500
|
Social Security Taxes
|
Tax Year(s)
|
FICA
|
SECA
|
Tax Year(s)
|
FICA
|
=
SECA
|
|
1937-49
|
1.00%
|
NA
|
1971-72
|
5.20%
|
7.50%
|
|
1950
|
1.50%
|
NA
|
1973
|
5.85%
|
8.00%
|
|
1951-53
|
1.50%
|
2.25%
|
1974-77
|
5.85%
|
7.90%
|
|
1954-56
|
2.00%
|
3.00%
|
1978
|
6.05%
|
8.10%
|
|
1957-58
|
2.25%
|
3.38%
|
1979-80
|
6.13%
|
8.10%
|
|
1959
|
2.50%
|
3.75%
|
1981
|
6.65%
|
9.30%
|
|
1960-61
|
3.00%
|
4.50%
|
1982-83
|
6.70%
|
9.35%
|
|
1962
|
3.13%
|
4.70%
|
1984
|
6.70%
|
11.30%
|
|
1963-65
|
3.63%
|
5.40%
|
1985
|
7.05%
|
11.80%
|
|
1966
|
4.20%
|
6.15%
|
1986-87
|
7.15%
|
12.30%
|
|
1967-68
|
4.40%
|
6.40%
|
1988-89
|
7.51%
|
13.02%
|
|
1969-70
|
4.80%
|
6.90%
|
1990-
|
7.65%
|
15.30%
|
PROCEDURE
Step 1.
Combine the wage base and FICA tax rates applied to these wage bases into a single Excel file. In the process, compute the maximum employee (and employer) contribution to Social Security, based only on the maximum wage base. Here's an example of a portion of the table:
|
Tax Year
|
Wage Base
|
Percent FICA
|
Maximum
|
|
1937
|
$3,000
|
1.00%
|
$30.00
|
|
1938
|
$3,000
|
1.00%
|
$30.00
|
|
|
--BREAK IN SEQUENCE--
|
|
|
2008
|
$102,000
|
7.65%
|
$7,803.00
|
|
2009
|
$106,500
|
7.65%
|
$8,147.25
|
Step 2
Introduction
FICA (Federal Insurance Contributions Act) and SECA (Self-Employment Contributions Act) represent the employer/ employee contributions to OASDI and Medicare and contribu-tions for the self-employed or sole proprietor. Notice that a self-employed individual didn't have to contribute to Social Security from 1937 through 1950.
Before the 1980s, self-employed taxpayers made a contribu-tion to Social Security that was less than the employee's and employer's contributions, combined. However, one of the solutions to the Social Security shortfall at that time was to phase in a catch-up provision, where, starting in 1990, the employer (7.65%) and employee (7.65%) and the self-employed (15.3%) make equivalent contributions. Effectively, the self-employed taxpayer makes both employer and employee contributions.
Procedure
Into the Excel file you completed in Step 1, add columns for the SECA tax rates applied to these wage bases. In the process, compute the maximum self-employed taxpayer's con-tribution to Social Security, based only on the maximum wage base. Also add a column for both employer and employee FICA components, so that we can compare the combined employer and employee contributions to FICA to the SECA contribu¬tions. Here's an example of a portion of the table:
|
Tax Year
|
Wage Base
|
FICA Percent
|
Maximum
FICA
|
2 Times Maximum FICA
|
SECA
Percent
|
Maximum
SECA
|
|
1937
|
$3,000
|
1.00%
|
$30.00
|
$60.00
|
0.00%
|
$ -
|
|
1938
|
$3,000
|
1.00%
|
$30.00
|
$60.00
|
0.00%
|
$ -
|
|
1939
|
$3,000
|
1.00%
|
$30.00
|
$60.00
|
0.00%
|
$ -
|
|
|
|
|
--- BREAK IN SEQUENCE-----------
|
|
|
|
1989
|
$48,000
|
7.51%
|
$3,604.80
|
$7,209.60
|
13.02%
|
$ 6,249.60
|
|
1990
|
$51,300
|
7.65%
|
$3,924.45
|
$7,848.90
|
15.30%
|
$ 7,848.90
|
|
|
|
|
--- BREAK IN SEQUENCE-----------
|
|
|
|
2008
|
$102,000
|
7.65%
|
$7,803.00
|
$15,606.00
|
15.30%
|
$15,606.00
|
|
2009
|
$106,500
|
7.65%
|
$8,147.25
|
$16,294.50
|
15.30%
|
$16,294.50
|
Notice that the employee and employer contributions to FICA became equivalent to the self-employed taxpayer's contribu-tion to SECA in 1990.
Prepare a simple Excel graphic to illustrate the combined dollar contributions of employee and employer to FICA compared to those for the self-employed taxpayer to SECA from 1937 through 2009.
Under current law, a taxpayer with a salary of $110,000 for 2009 would pay only 7.65% on the first $106,500. The same would be said for the employer. However, also under current law, any amount in excess of the $106,500 wage base and earned income amount for 2009 would continue to be subject to the 1.45% Medicare contribution by both employer and employee, for a total of 2.9%.
Separately compute the amounts, in addition to the $16,294.50 from the above table, that the employee and employer would have to pay for Medicare, assuming a salary level of $110,000 for the 2009 calendar and tax year. Show your calculations.