16 Oct Social Security Wage Base Increases to $113,700 in 2013
Social security benefits will rise by only 1.7 percent in 2013, down sharply from a 3.6 percent increase in 2012’s cost of living adjustment (COLA). That boost followed two years of no COLA increase. The Social Security Administration (SSA) said next year’s COLA would raise the average monthly benefit payment by $21, to $1,261 from $1,240.
For people still working, the COLA increase will also translate into a higher earnings ceiling for Social Security payroll taxes. The SSA announced today that the 2013 social security wage base will be $113,700, an increase of $3,600 from the 2012 wage base of $110,100. As in prior years, there is no limit to the wages subject to the Medicare tax; therefore all covered wages are still subject to the 1.45% tax. Wages paid in excess of $200,000 in 2013 will be subject to an extra 0.9% Medicare tax that will only be withheld from employees’ wages. Employers will not pay the extra tax.
The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2013 up to the social security wage base. The maximum social security tax employees and employers will each pay in 2013 is $7,049.40. This will be an increase of $2,425.20 for employees and $223.20 for employers. Note that the 2012 FICA tax rate is 4.2% for employees and 6.2% for employers under the Middle Class Tax Relief and Job Creation Act of 2012, and that the rate is scheduled to be 6.2% for both employees and employers in 2013. However, bills currently being considered in Congress may change this.
The Social Security COLA is based on a version of the U.S. Consumer Price Index tailored for people who work. It’s called the CPI for Urban Wage Earners and Clerical Workers, or the CPI-W. Every year, Social Security looks at the CPI-W average during the third quarter of the year, compares it with the average during the previous year’s third quarter, and designates any percentage increase as the following year’s COLA.
The COLA change also affects numerous other Social Security benefits, including the tax treatment of outside income earned by recipients, disability payments, and how much money working people need to earn each quarter of the year to qualify to earn credits for Social Security payments when they retire. These changes are spelled out in an online fact sheet.
For more information on this or any other HR-related matters, contact Prestige.