New legislation signed by President Obama on December 17, 2010 changed the employee tax rate for Social Security from 6.2% to 4.2% for 2011.
Over the last several weeks, the Federal government has announced that the Social Security taxable wage base and many pension plan limits for 2011 will remain unchanged from 2010.
2011 Social Security Wage Base
For the second time since 1975, the Social Security Administration (SSA) announced it will not be increasing the Social Security wage base. In previous years, the annual wage base increase has been due to an automatic Cost-of-Living Adjustment (COLA). Since there will not be a COLA increase in the amounts paid to Social Security beneficiaries in 2011, the wage base will remain unchanged at $106,800.
With the 2011 Social Security wage base at $106,800, the maximum Old-Age, Survivors, and Disability Insurance (OASDI) tax payable by an employee is $6,621.60 or 6.2 percent of the wage base (note the recent change for the 6.2% employee tax rate at the beginning of this article). 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.
Social Security Wage Base History
Wonder how much the Social Security payroll tax limits have changed over the last five years? Here are the Social Security taxable wage base limits since 2007:
- 2007 wage base: $97,500
- 2008 wage base: $102,000
- 2009 wage base: $106,800
- 2010 wage base: $106,800
- 2011 wage base: $106,800
2011 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 last week that the 2011 limits pertaining to 401(k) and other defined contribution plans will either remain unchanged or the inflation adjustments will be small.
Here are some of the 2011 highlights:
- The 2011 contribution limit for employees who participate in section 401(k), 403(b) or 457(b) plans, and the Federal government’s Thrift Savings Plan remains unchanged at $16,500.
- The catch-up contribution limit under those plans, for those aged 50 and over, remains unchanged at $5,500.
- The limitation regarding SIMPLE retirement accounts remains unchanged at $11,500.