The Social Security Administration has announced that the wage base for computing Social Security tax will be $113,700 for 2013 (an increase from $110,100 in 2012). Additionally, cost-of-living adjustment (COLA) increases have been released for Social Security benefits.
Wage Base Increases
The Social Security wage base is the maximum amount of wages (or self-employment earnings) on which Social Security tax (or self-employment tax) is collected. The increase for 2013 represents a 3.27 percent rise from 2012. Reflecting the new wage base, the tax rates and the maximum tax amounts will be as follows:
* Does not include basic Medicare tax or the new 0.9 percent additional Medicare tax on high earners.
Cost of Living Adjustments
Social Security and Social Security Income (SSI) beneficiaries will receive a COLA based on the annual increase in the Consumer Price Index. For 2013, this increase will be 1.7 percent.
For example, for all retired workers, the estimated average monthly Social Security benefit amount payable starting in January 2013 will be $1,261 (an increase from $1,240 before computing the 1.7 percent COLA).
Retirement Earnings Test
An individual under full retirement age may have $1 in Social Security benefits withheld for every $2 earned above an exempt amount. For 2013, the annual exempt amount will be $15,120, up from $14,640 in 2012.
Contact Doeren Mayhew for assistance in understanding how the increased Social Security wage base, COLA increases, and increased earnings test exempt amount may affect your overall tax planning.