Do you know what has risen every year except three since 1971? The Social Security’s Old-Age, Survivors and Disability Insurance (OASDI) program contribution and benefit base. In every day terms, it’s the amount of an individual’s income that is taxable for Social Security. For 2014, that limit is now $117,000.
What does the Contribution and Benefit Base limit mean?
The first $117,000 someone earns will be taxes at a rate of 6.2%. The rate did not change for 2014. Both employees and employers each pay 6.2% or $7,254.00 each to the OASDI program. And yes, that is PER EMPLOYEE.
Once an employee’s earnings reach that annual limit, the balance of the income is not taxed, nor do employers have to pay their 6.2% share of the taxes. For self-employed people like many small business owners and entrepreneurs, the rate is 12.4%, which is just the employee’s and employer’s shares combined.
Many employees take jobs never realizing what an investment the business owner is making with their employment. They wait for payroll to be run and complain about the taxes, but many don’t see that the small business taxes are being paid on their behalf.
The Medicare Hospital Insurance program
There is no limitation or taxable maximum when it comes to Medicare’s Hospital Insurance (HI) program. The employees are required to pay 1.45% tax rate and the employers pay the same 1.45% tax rate for a total of 2.9% in taxes for HI per year. Self-employed people pay the entire 2.9% themselves.
So, on top of taking care of the usual regulations and requirements on payroll, employers also have to monitor the cumulative level of income earned by employees so if that maximum is reached, the payroll gets adjusted.
OR, you could hire someone like The Payroll Department for payroll services. They would monitor the OASDI tax as well as all the other taxes, rules and regulations. Since payroll is all this payroll provider does, they stay on top of it all so you don’t have to! And that means you have more time to devote to employees in the workplace and making your small business a success.
-Elaine of the Payroll Department Blog Team