About 10 million Americans will fork over a bigger slice of their paycheck to Social Security and Medicare taxes this year but Social Security retirement benefits increase by just 1.5%.
If you're among the estimated 10 million Americans who earn more than $100,000 per year, you'll fork over a bigger slice of your paycheck to Social Security and Medicare taxes in 2014.
The maximum amount of a worker's pay subject to Social Security taxes — the so-called “wage base” — increased 2.9% this year to $117,000, from $113,700 in 2013.
The Social Security tax rate of 12.4%, split evenly between employers and employees, remains the same. That means top earners will pay $7,254 in Social Security taxes in 2014, up about $200 from 2013's $7,049.40.
Self-employed individuals pay both the employer and employee tax for a maximum Social Security tax of $14,508, but they can deduct half of their FICA taxes on their federal income tax return.
But the tax hike doesn't stop there.
Employees and employers also each pay a 1.45% Medicare tax on all wages with no cap. The self-employed pay a combined Medicare tax of 2.9%.
And high-income workers with wages or self-employment income that tops $200,000 for individuals, $250,000 for married couples filing jointly or $125,000 for married couples filing separately will be subject to an additional Medicare surcharge of 0.9%.
The Medicare surcharge, which first took effect last year, is calculated on your federal income tax return. So you won't feel the sting of the initial tax hike until you file your 2013 taxes this year.
Meanwhile, 63 million retirees and disabled individuals will receive a 1.5% bump in their Social Security benefits in 2014. The Medicare Part B premium, is usually deducted from Social Security benefits and covers doctor visits and outpatient services, will remain the same at $104.90 per month for the majority of beneficiaries, so net Social Security benefits will be modestly higher.
The maximum Social Security benefit for a worker retiring at full retirement age of 66 in 2014 is $2,642 per month, up from $2,533 per month last year.
The earnings caps for those who begin collecting Social Security benefits before their full retirement age while they continue to work increases $360 per year to $15,480 in 2014, up from $15,120 in 2013. Those who earn more than that will lose $1 in benefits for every $2 earned over the limit.
A more generous earnings cap applies in the year someone reaches full retirement age. They can earn up to $3,450 per month (or $41,400 per year) in the months leading up to their 66th birthday, up $5 per month from 2013. Earnings over those limits will trigger the loss of $1 in Social Security benefits for every $3 earned above the cap.
Earnings cap restrictions disappear once you reach full retirement age, meaning once you turn 66, you can continue to work while collecting Social Security with no loss in benefits.
