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.
SS Wage Base Increases for 2013
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 wage base’s increase for 2013 represents a 3.27% rise from 2012. Reflecting the new wage base, the tax rates and the maximum tax amounts will be as follows:
Social Security Self Employment
Base: $113,700 $113,700
Rate: 6.2% 12.4%
Maximum Tax: $7,049.40 $14,098.80
Those figures above do not include basic Medicare tax or the new 0.9% additional Medicare tax on high earners.
2013 Social Security Benefit COLAs
Social Security and Social Security Income (SSI) beneficiaries will receive a cost of living adjustment based on the annual increase in the Consumer Price Index. For 2013, this increase will be 1.7%.
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% 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.
We’re Here to Help
We can assist you with understanding how the increased Social Security Wage Base, COLA increases, and increased earnings test exempt amount may affect your overall tax planning. If you have any questions regarding the retirement plan inflation adjustments and limitations and how they apply to you, feel free to contact one of our CPAs.