What Will You Do With Your Extra $200?
It’s that time of year again! When certain people who make six-figure salaries realize that they are getting to keep more of their salary for the rest of the year because they’ve maxed out the amount they are expected to pay into Social Security. In the case of my friend who acquainted me with this phenomenon, and who was super excited about it, it’s an extra $200 per pay period, but YMMV.
From the SSA website:
When you have wages or self-employment income that is covered by Social Security, you pay Social Security taxes each year up to a maximum amount that is set by law. That amount has changed frequently over the years. For 2013, the maximum amount of taxable earnings was $113,700. In 2014, the maximum amount of taxable earnings is $117,000.
Clear? No? How about now:
Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) program limits the amount of earnings subject to taxation for a given year. The same annual limit also applies when those earnings are used in a benefit computation. This limit changes each year with changes in the national average wage index. We call this annual limit the contribution and benefit base. For earnings in 2014, this base is $117,000. The OASDI tax rate for wages paid in 2014 is set by statute at 6.2 percent for employees and employers, each. Thus, an individual with wages equal to or larger than $117,000 would contribute $7,254.00 to the OASDI program in 2014, and his or her employer would contribute the same amount. The OASDI tax rate for self-employment income in 2014 is 12.4 percent.
Still no, huh? Hm. It’s almost as though government websites are not written with clarity and ease of use in mind. No matter! Let’s try the media. According to Forbes, “about 10 million high wage workers will see $7254 in Social Security taxes taken out of their paychecks in 2014, or $204.60 more than in 2013. (The self-employed pay both the employer and employee tax.)”
What Forbes doesn’t mention is, once you’ve hit that cap, you’re done! You’ve paid your dues and released from further obligation to the federal government / your future until 2015. The well-heeled among you can enjoy your bonus riches and start fantasizing about what you’ll spend them on, like perhaps a $4,000 romantic tiny house in a tree. Or do you have other grand plans?
I do not qualify, duh, but I did get a $350 check from NY State today — motto: “Don’t Say We Never Gave You Anything” — for being a parent maybe? So yay! Windfalls all around.