Social Security solvency has been a topic of significant debate in recent years. As the population ages, life expectancy increases, and fewer workers fund the PAYGO system, this topic is likely to remain important until it's solved. This project is designed to increase your understanding of how Social Security taxes are imposed and show you how to research Social Security insurance and retirement benefits.

Take a moment to review the tables below. These are the wage bases to which the OASDI component of Social Security applies. For the 2009 calendar and tax year, this is 6.2% of $106,500 (7.65% up to this wage base ceiling for both OASDI and Medicare).

Social Security Wage Base through the Years
Tax Year Wage Base	Tax Year Wage Base	Tax Year Wage Base	Tax Year Wage Base
1937-5	$3,000	1977	$16,500	1988	$45,000	1999	$72,600
1951-54	$3,600	1978	$17,700	1989	$48,000	2000	$76,200
1955-58	$4,200	1979	$22,900	1990	$51,300	2001	$80,400
1959-65	$4,800	1980	$25,900	1991	$53,400	2002	$84,900
1966-67	$6,600	1981	$29,700	1992	$55,500	2003	$87,000
1968-71	$7,800	1982	$32,400	1993	$57,600	2004	$87,900
1972	$9,000	1983	$35,700	1994	$60,600	2005	$90,000
1973	$10,800	1984	$37,800	1995	$61,200	2006	$94,200
1974	$13,200	1985	$39,600	1996	$62,700	2007	$97,500
1975	$14,100	1986	$42,000	1997	$65,400	2008	$102,000
1976	$15,300	1987	$43,800	1998	$68,400	2009	$106,500

 

Social Security Taxes
Tax Year(s)                SECA         FICA	Tax Year(s)            SECA            FICA
1937-49	1.00%	NA	1971-72	5.20%	7.50%
1950	1.50%	NA	1973	5.85%	8.00%
1951-53	1.50%	2.25%	1974-77	5.85%	7.90%
1954-56	2.00%	3.00%	1978	6.05%	8.10%
1957-58	2.25%	3.38%	1979?80	6.13%	8.10%
1959	2.50%	3.75%	1981	6.65%	9.30%
1960-61	3.00%	4.50%	1982-83	6.70%	9.35%
1962	3.13%	4.70%	1984	6.70%	11.30%
1963-65	3.63%	5.40%	1985	7.05%	11.80%
1966	4.20%	6.15%	1986-87	7.15%	12.30%
1967-68	4.40%	6.40%	1988-89	7.51%	13.02%
1969-70	4.80%	6.90%	1990-	7.65%	15.30%
FICA Tax (1937- ), SECA Tax (1951- ), SECA tax subsidy phase-out completed & SECA taxes adjusted & partially deductible (1990- )

Remember, the 7.65% for 1990 represents the 6.2 percent OASDI plus the 1.45 percent Medicare tax.

Procedure

Follow these steps to complete your project.

Step 1

Combine the wage base and FICA tax rates applied to these wage bases into a single Excel file. In the process, compute the maximum employee and employer contribution to Social Security, based only on the maximum wage base. Here's an example of a portion of the table:

Tax Year	Wage Base	Percent FICA	Maximum
1937	$3,000	1.00%	$30.00
1938	$3,000	1.00%	$30.00
— —BREAK IN SEQUENCE— —
2008	$102,000	7.65%	$7,803.00
2009	$106,500	7.65%	$8,147.25

Step 2

FICA (Federal Insurance Contributions Act) and SECA (Self- Employment Contributions Act) represent the employer and employee contributions to OASDI and Medicare and contributions for the self-employed or sole proprietor. Notice that a self-employed individual did not have to contribute to Social Security from 1937 through 1950.

Before the 1980s, self-employed taxpayers' contributions to Social Security were less than the employee's and employer's contributions combined. However, one of the solutions to the Social Security shortfall at that time was to phase in a catch-up provision, where, starting in 1990, the employer (7.65%), the employee (7.65%), and the self-employed (15.3%) make equivalent contributions. Effectively, the self-employed taxpayer makes both employer and employee contributions.

In the Excel file you completed in Step 1, add columns for the SECA tax rates applied to these wage bases. In the process, compute the maximum self-employed taxpayer's contribution to Social Security, based only on the maximum wage base. Also add a column for both employer and employee FICA components so that you can compare the combined employer and employee contributions to FICA to the SECA contributions. Here's an example of a portion of the table:

Tax Year	Wage Base	FICA Percent	Maximum FICE	2 Times Maximum FICE	SECA Percent	Maximum SECA
1937	$3,000	1.00%	$30.00	$60.00	0.00%	$ —
1938	$3,000	1.00%	$30.00	$60.00	0.00%	$ —
1939	$3,000	1.00%	$30.00	$60.00	0.00%	$ —
— — — — —BREAK IN SEQUENCE— — — — —
1989	$48,000	7.51%	$3,604.80	$7,209.60	13.02%	$ 6,249.60
1990	$51,300	7.65%	$3,924.45	$7,848.90	15.30%	$ 7,848.90
— — — — —BREAK IN SEQUENCE— — — — —
2008	$102,000	7.65%	$7,803.00	$15,606.00	15.30%	$15,606.00
2009	$106,500	7.65%	$8,147.25	$16,294.50	15.30%	$16,294.50

Notice that the employee and employer contributions to FICA became equivalent to the self-employed taxpayer's contribution to SECA in 1990.

Step 3

Prepare a simple Excel graphic to illustrate the employee's and the employer's combined dollar contributions to FICA compared to those for the self-employed taxpayer to SECA from 1937 through 2009.

Step 4

Under current law, a taxpayer with a salary of $110,000 for 2009 would pay only 7.65% on the first $106,500. The same would be said for the employer. However, also under current law, any amount in excess of the $106,500 wage base and earned income amount for 2009 would be subject to the 1.45% Medicare contribution by both employer and employee, for a total of 2.9%.

In addition to the $16,294.50 from the above table, separately compute the amounts that the employee and employer would have to pay for Medicare, assuming a salary level of $110,000 for the 2009 calendar and tax year. Show your calculations.