The ”good” news about ever-increasing Social Security taxes is that the tax rate for 1991 of 7.65 percent for both employers and employees remains unchanged from 1990. The bad news is unsurprising-yet another in the series of hikes in the ”wage base,” which is Uncle Sam`s term for the maximum amount of earnings on which Social Security taxes are assessed.
For openers, the wage base for the 7.65 percent tax went to $53,400 for 1991 from $51,300 for 1990. Worse yet, the 7.65 percent tax includes two figures-a 6.20 percent tax for Social Security and a 1.45 percent tax for Medicare. Before 1991, there was only one wage base for the entire 7.65 percent tax. Now, however, there are separate wage bases for the Social Security and Medicare parts. For 1991, the wage bases are $54,300 for Social Security and $125,000 for Medicare.
So, while withholding for the Social Security part ends at $53,400, it continues just for the smaller Medicare part on wages of up to $125,000 for 1991.
For a worker who earns more than $125,000 this year, the additional bite will be as much as $1,198.85 (the top tax of $5,123.30 for 1991 minus the top tax for 1990 of $3,924.45). Put another way, the reward for anyone whose wages or salary surpasses $125,000 is a total drop in take-home pay of up to $1,198.85-a figure that can double for high-earning, two-paycheck couples.
There is also an increase in Social Security taxes for many self-employed people who run their businesses or professions as sole proprietorships, in partnership with others or as independent contractors.
Their tax rate of 15.30 percent on net (receipts minus expenses) self-employment earnings remains unchanged from 1990. But the base figure for the 15.30 percent tax (which includes 2.90 percent for Medicare) goes to 1991 earnings of $53,400 from 1990 earnings of $51,300, and the smaller Medicare tax applies to earnings between $53,400 and $125,000.
For self-employeds with earnings over $51,300, the top tax goes to $10,246.60 for 1991 from $7,848.90 for 1990, an increase of $2,397.70. But the self-employment tax can be offset by an income tax deduction for one-half of the self-employment tax.
You are excused from the self-employment tax if you pay the full Social Security tax of $5,123.30 through withholding from wages. Stated differently, no self-employment tax falls due if you work for someone else and receive salary or wages of $125,000 or more on which your employer withholds Social Security.
There is a measure of relief if your salary is below $125,000. You still are liable for self-employment tax on your business earnings, but just for the difference between $125,000 and your salary.
For example: You have 1991 self-employment earnings of $130,000 and salary of $20,000. No more than $105,000 of your business earnings ($125,000 minus $20,000) is subject to the self-employment tax. If your salary is the same $20,000, but your business earnings are below $105,000, all of your earnings are hit by the self-employment tax.
