Do you know what FICA is? Yes, it’s that amount which is deducted from your paycheck for “taxes”. FICA is made up of two taxes, one for Old, Age, Survivors and Disability Insurance (OASDI or the Social Security tax) and the other for Hospital Insurance (the Medicare tax). Many people don’t realize that the FICA tax rate (broken down between the Social Security tax and Medicare tax) is 7.65% for employees AND 7.65% for employers – both pay. Self-employed persons pay the total of 15.3%, but get a deduction for half in determining their “adjusted gross income” for income tax purposes. The Social Security component of FICA is subject, however, to a “wage base”, above which the tax is not imposed, while the Medicare tax is not subject to a wage base.
For the year 2013, the wage base is $113,700. It is now “projected” to rise in 2014 to $115,500. In 2022 the projected wage base may be $165,600.
These numbers, form part of a “low, intermediate, and high” projection of the wage base made by the Social Security Administration’s Office of the Chief Actuary, and included in an annual report to Congress by the Social Security Board of Trustees. The report indicates that Social Security may become insolvent by 2033. The projected year of insolvency remained the same as last year’s report to Congress.
Published reports indicate that the Social Security system is in need of an “overhaul” and something must be done to bolster the trust fund used to support it. What must be done in the “overhaul” and how it should be accomplished in the universe of taxation and budget deficits is a topic subject to much political debate.
What is clear is that at every stage of one’s life there must be planning for the future, whether business or wealth preservation or both. We don’t know what the future holds for Social Security and taxation, but we do know that with proper business and wealth preservation discussions now, some of those aspects of the future might be planned for under “best case/worst case” scenarios. Why not start looking to the future now, before the next “bite of apple”?