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Recently, the Federal government has announced the 2012 Social Security taxable wage base and pension plan limits.
2012 Social Security Wage Base
The Social Security Administration (SSA) announced that the 2012 Social Security wage base will be $110,100, up from $106,800 where it has been set for the past three years. 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. Of the estimated 161 million workers who will pay Social Security taxes in 2012, about 10 million will pay higher taxes as a result of the increase in the taxable wage base.
With the 2012 Social Security wage base at $110,100, the maximum Old-Age, Survivors, and Disability Insurance (OASDI) tax payable by an employee is $6,826.20 or 6.2 percent of the wage base. The employer matches the amount with an equal contribution.
The Medicare portion of the Federal Insurance Contributions Act (FICA) tax continues to apply to all taxable wages earned and the rate remains at 1.45 percent.
It is important to note that the 2011 FICA tax rate is 4.2% for employees and 6.2% for employers under the 2010 Tax Relief Act. Currently that rate is scheduled to be 6.2% for both employees and employers in 2012. However, there is legislation that is currently being considered which may impact the 2012 FICA tax rate.
Social Security Wage Base History
Wonder how much the Social Security payroll tax limits have changed over the last ten years? Here are the Social Security taxable wage base limits since 2003:
2012 Pension Plan Limits
The Federal government sets dollar limits as to how much an employee can contribute to their company’s qualified retirement plan each tax year. These limits are based on the cost-of-living index. If an employee reaches the age of 50 during the current tax year, they will qualify for the “Catch Up” provision… only if it is an established provision of the Company’s 401(k) plan.
The Internal Revenue Service (IRS) announced the 2012 limits pertaining to 401(k) retirement plans and other defined contribution plans. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.
Here are some of the 2012 highlights: