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SOCIAL SECURITY MAX INCREASED TO $80,400 FOR 2001
Each year, the government raises the maximum amount of social
security taxes that an individual will pay. For 2001, the maximum
social security wage base will be $80,400, an increase of $4,200 from
the 2000 maximum of $76,200. Since social security taxes are withheld
at a rate of 6.2%, the maximum amount of social security taxes that
can be withheld from a person's wages will increase from $4,724.40 in
2000 to $4,984.80 in 2001.
In addition to social security taxes, every individual has medicare
taxes withheld from their pay at a rate of 1.45%. There is no limit
to the amount of wages subject to medicare taxes.
Wages in excess of the social security max for 2000:
For 2000, each employee is subject to social security taxes on the
first $76,200 of wages earned during the year. At a rate of 6.2%,
this translates into total social security taxes of $4,724.40. There
are situations when a taxpayer will have more than the maximum of
$4,724.40 withheld during the course of the year.
Since employers are required to withhold social security taxes on the
first $76,200 earned by each of their employees (this allows the
government to keep the employer's matching contributions), taxpayers
who work for more than one employer and earn more than $76,200 during
the year will have excess social security taxes withheld. Any excess
social security taxes withheld during the year should be reported on
line 62 of the Form 1040 and counted as additional federal income
A person works for two employers and earns $50,000 from each
employer. Employer #1 will withhold $3,100 in social security taxes
($50,000 * 6.2%). Employer #2 will also withhold $3,100 in social
security taxes. The total social security taxes withheld during the
year for this person is $6,200. Since the maximum amount of social
security taxes that a person will be subject to in 2000 is $4,724.40,
this person will have excess taxes of $1,475.60 withheld and should
re-characterize those excess social security taxes as federal income
A) Social security taxes withheld by Employer #1
B) Social security taxes withheld by Employer #2
C) Total social security taxes withheld during the year (A+B)
D) Social security max for 1999
E) Excess social security taxes withheld (C-D)
Calculating the self-employment tax:
Self-employed individuals are subject to social security and medicare
taxes as well. These two taxes are reported as part of an additional
tax known as the "self-employment tax". Self-employment
taxes are calculated on a Schedule SE and are reported on line 50 of
the Form 1040.
The self-employment tax is based on a social security tax rate of
12.4% and a medicare tax rate of 2.9%. These rates are double those
paid by employees since a self-employed person must pay both the
employee's portion and the employer's portion of both taxes.
If an individual earns income as an employee and as an independent
contractor, and the combined income exceeds $76,200 in 2000, Section
B of the Schedule SE should be completed. Otherwise, the calculation
will be incorrect and too much self-employment taxes will be submitted.
A great place to find out more about your social security taxes and
projected benefits is at the Social Secuirty Administration's website
located at www.ssa.gov.
FYI: The social security wage base has been increased each
year. The wage base maximum has been increased as follows:
2001 wage base max: $80,400
2000 wage base max: $76,200
1999 wage base max: $72,600
1998 wage base max: $68,400
1997 wage base max: $65,400
1996 wage base max: $62,700
1995 wage base max: $61,200
1994 wage base max: $60,600
TO DO LIST FOR NOVEMBER, 2000
Saving and Investing
Good time to make semi-annual donation of clothing and
household items to charitable organizations
Need to make applicable elections in connection with
employer's flexible spending account
Contact MDTAXES CPA to discuss any year end tax
planning questions or strategies
1999 & 2000 TAX FACTS
For 2000, the standard deduction for a single individual is $4,400
and for a married couple is $7,350. A person will benefit by
itemizing once allowable deductions exceed the applicable standard
deduction. Itemized deductions include state and local income taxes,
real estate taxes, mortgage interest, charitable contributions, and
unreimbursed employee business expenses.
For 2000, the personal exemption is $2,800. Individuals will
claim a personal deduction for themselves, their spouse, and their dependents.
The maximum earnings subject to social security taxes
has been increased to $80,400 in 2001 from $76,200 in 2000.
The standard mileage rate has been increased back to
$.325 per mile as of January 1, 2000 from a rate of $.31 per
mile as of April 1, 1999.
The maximum annual contribution to a 401(k) plan or a 403(b)
plan is currently $10,500 in 2000.
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