Last week, the Social Security Administration (SSA) announced that monthly Social Security benefit checks for more than 60 million Americans will increase by 3.6% for cost-of-living adjustments (COLA) in 2012. This is good news for granny, but not so good news for the 10 million Americans who already pay the maximum taxable amount of Social Security taxes. Their Social Security taxes will be going up.
The 2012 COLA is the first automatic increase in Social Security benefits since 2009. To pay for the COLA increase, the SSA raised the maximum amount of earnings subject to Social Security tax from $106,800 to $110,100, an increase of $3,300.
Pending any changes to the Social Security payroll tax rate (currently scheduled to be 6.2% for 2012 for employees and employers) like those proposed in President Obama’s Jobs Bill, employees earning more than $110,100, and their employers, will each pay $6,826.20 in Social Security taxes for 2012. A self-employed individual will pay a maximum of $13,652.40 for Social Security taxes in 2012. Because of the payroll tax holiday included in the Job Creation Act of 2010, which reduced the employee Social Security tax rate to 4.2% from 6.2% for 2011, employees and self-employeds will pay a maximum Social Security tax of $4,485.60 and $11,107.20, respectively, for 2011. The 6.2% FICA rate has not changed since 1990.
President Obama’s Job Bill had proposed reducing the Social Security tax rate for employees from 6.2% to 3.1% for 2012. The Senate defeated the Jobs Bill, but the payroll tax holiday may pop up again as a separate piece of legislation in the House or Senate.
The SSA also increased the earnings limit for workers receiving Social Security benefits and who are younger than “full” retirement age (age 66 for people born in 1943 through 1954). For 2012, the earnings limit will be $14,640, up from $14,160 for 2011. For each $2 earned over $14,640, $1 will be deducted from 2012 Social Security benefits.
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