Social security taxes (FICA) are imposed at the rate of 6.2% on the wages of taxpayers, with a matching 6.2% tax on their employers - the self-employed pay a tax of 12.4%. This tax is not applied against all wage income - wages higher than the wage base are not taxed.
In 2007, the wage base limit was $97,500. In 2008, it will increase for inflation to $102,000. Therefore, wage earners who earn at or above these levels will see a $279 tax increase, and their employers will also see a $279 tax increase. A self-employed wage earner will pay an additional $558.
Taxpayers who earn wages at these levels are often pleasantly surprised when their take home pay increases during the calendar year after their wages have passed the wage base limit since withholding for social security taxes disappears. For taxpayers who do not get a significant raise, they will be waiting longer for this happy day in 2008 than in 2007.
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