Social Security and Medicare Taxes and Premiums: Fact Sheet

CRS Report for Congress
Received through the CRS W eb
Social Security and M edicare T axes and
Premiums: F act Sheet
DawnNuschler
Domestic Social Policy Division
Taxes: Fi nancing for Soci al Security—Old Age, Survivors, and Disability Insurance
(OAS DI)—and t he Hospital Insur a n c e ( H I) part of Medicare i s p rovided p rimarily by
t ax es l evi ed o n w ages and n et sel f-em p l o ym ent i ncom e. They are r e f e r r e d t o as FIC A
t ax es (for Federal In surance C ont ri but i ons Act ) and S EC A t ax es (for S el f-Em p l o ym ent
Contributions Act). The FICA tax i s pai d by employees and employers; t he SECA tax i s
paid by the s elf-employed (about 96% of the work force is required t o p ay them). Bo th
have three c omponents: OASI, DI, and HI. The FICA tax was first l evied i n 1937 at a
rate of 1% (for both employee and employer) o n earnings u p t o $3,000. The current rate
is 7.65% — 6.2% for OASDI, 1.45% for HI. The S ECA rate f o r the s elf-employed i s
12.4% for OASDI, 2.9% for HI. The OASDI tax i s l evied o n earnings u p t o $87,900 in
2004 (earnings s ubject to the OASDI tax are index ed t o i ncreases in the n ational average
wage). The HI t ax is levied on all earnings. This fact sheet is updated annually.¹
FI CA and S ECA T ax Rates (i n p ercent )
^Ra^te^p^aⁱ^d^b^y^e^mp^lo^yee^&^e^mp^lo^yer^Sel^f^-^em^pl^.
^ra^te^C^Y^OA^SI^DI^OA^SDI^H^I^T^otal^Maxⁱ^m^u^m^t^ax^able^earnⁱⁿ^g^s
¹⁹³⁷^1.0^—^—^—^1.0^—^$3,000
¹⁹⁵⁰^1.5^—^—^—^3.0^—^$3,000
¹⁹⁶⁰^3.0^.²⁵^2.75^—³^.0^4.5^$4,800
¹⁹⁷⁰^3.65^.55⁴^.20⁰^.60⁴^.8^6.9^$7,800
¹⁹⁸⁰^4.52^.56⁵^.08¹^.05⁶^.13⁸^.1^$25,900
¹⁹⁹⁰^5.60^.60⁶^.20¹^.45⁷^.65^15.3^$51,300
¹⁹⁹⁵^5.26^.94⁶^.20¹^.45⁷^.65^15.3^$61,200^(O^A^S^D^I);ⁿ^o^lⁱ^mⁱ^t^(H^I)
²⁰⁰⁰^5.30^.90⁶^.20¹^.45⁷^.65^15.3^$76,200^(O^A^S^D^I);ⁿ^o^lⁱ^mⁱ^t^(H^I)
²⁰⁰⁴^5.30^.90⁶^.20¹^.45⁷^.65^15.3^$87,900^(O^A^S^D^I);ⁿ^o^lⁱ^mⁱ^t^(H^I)
^NOT^E^:^Uⁿ^tⁱ^l^1991,^t^h^e^a^m^o^uⁿ^t^of^m^a^xⁱ^m^u^m^t^ax^abl^e^earnⁱⁿ^g^s^w^a^s^t^h^e^s^a^m^e^f^o^r^O^A^S^D^I^an^d^H^I.^In^1992,
^t^h^e^a^m^o^uⁿ^t^of^m^a^xⁱ^m^u^m^t^ax^abl^e^earnⁱⁿ^g^s^f^o^r^H^I^w^as^rai^s^ed^t^o^$125,000.^In^1993,ⁱ^t^w^a^s^r^ai^s^e^d^t^o^$135,000.
^F^o^r¹⁹⁹⁴^an^d^t^h^e^reaf^t^e^r,^t^h^e^H^I^t^axⁱ^s^l^e^vⁱ^ed^on^al^l^earnⁱⁿ^g^s^.^T^ax^credi^t^s^w^e^re^provⁱ^d^ed^t^o^t^h^e^s^el^f^-^e^m^p^l^o^y^e^d
^f^o^r^t^h^e^peri^od^f^r^om¹⁹⁸⁴^t^h^rou^g^h^1989.^F^o^r¹⁹⁹⁰^an^d^l^at^er,^oⁿ^l^y^92.35%^ofⁿ^e^t^s^el^f^-^e^m^p^l^o^y^m^en^t^earnⁱⁿ^g^s
^is^tax^a^b^l^e^aⁿ^d^h^a^lf^o^f^th^e^S^ECA^t^ax^es^so^co^m^p^u^t^ed^is^d^e^d^u^ctib^le^f^o^r^f^ed^er^alⁱⁿ^co^m^e^tax^p^u^r^p^o^s^es.
¹ This report was wr itten by f ormer CRS analyst Geoffrey K ollmann.
Congressional Research Service ˜ The Library of Congress
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Examples of Annual FICA and SECA Tax Paymen ts, S el ected Years 1950-2004
^Average-w^age^earner^a^High-w^age^earner^a
^C^a^len^d^ar^y^ear^FIC^A^a^SE^CA^b^FI^CA^a^SE^CA^b
¹⁹⁵⁰^$38^—^$45^—
¹⁹⁶⁰^$120^$180^$144^$216
¹⁹⁷⁰^$297^$427^$374^$538
¹⁹⁸⁰^$767^$1,014^$1,588^$2,098
¹⁹⁹⁰^$1,609^$2,748^$3,924^$6,234
²⁰⁰⁰^$2,460^$4,203^$7,624^$12,140
²⁰⁰⁴^$2,770^$4,732^$8,350^$13,411
^a^Em^ploy^ee^s^h^are^oⁿ^l^y^f^or^FIC^A^colu^mⁿ^.^Aⁿ^a^v^e^rag^e^-^w^ag^e^earn^e^rⁱ^s^a^s^s^u^m^e^d^t^o^b^e^s^om^eon^e^w^h^o^earn^e^d
^a^v^e^r^a^g^e^w^a^g^e^s^t^h^r^o^ugho^ut^hi^s^o^r^h^e^r^w^o^r^kⁱⁿ^g^y^e^a^r^s⁽^a^v^e^r^a^g^e^w^a^g^e^s^a^r^e^e^stⁱ^m^a^t^e^d^fo^r^2004).^F^or¹⁹⁵⁰
^t^h^rou^g^h^1990,^a^hⁱ^g^h^-^w^a^g^e^earn^e^rⁱ^s^a^s^s^u^m^e^d^t^o^b^e^s^om^eon^e^w^h^o^earn^e^d^t^h^e^m^a^xⁱ^m^u^m^w^ag^e^l^e^v^e^l
^s^u^bj^ect^t^o^O^A^S^D^I^aⁿ^d^H^I^t^a^x^e^s^.^F^o^r²⁰⁰⁰^an^d^2004,^a^hⁱ^g^h^-^w^a^g^e^earn^e^rⁱ^s^a^s^s^u^m^e^d^t^o^b^e^s^om^eon^e
^w^h^o^earn^s^$200,000^a^y^ear.^b
^F^o^r¹⁹⁹⁰^an^d^l^at^er,^fⁱ^g^u^r^esⁱⁿ^t^h^e^t^abl^e^areⁿ^et^of^f^e^deralⁱⁿ^c^om^e^t^ax^dedu^ctⁱ^oⁿ^e^qu^al^t^o^on^e-^h^a^l^f^of^S^E^C^A
^t^a^x^e^s^.^In^1990,^t^h^e^a^v^e^rag^e^an^d^hⁱ^g^h^-^w^a^g^e^w^o^rk^erⁱ^s^as^s^u^m^e^d^t^o^b^eⁱⁿ^t^h^e^15%^an^d^28%^m^a^rgⁱⁿ^al^t^a^x
^brack^et^s^,^res^p^ectⁱ^v^el^y^.^In^2000,^t^h^ey^are^a^s^s^u^m^e^d^t^o^b^eⁱⁿ^t^he^15%^an^d^36%^m^a^rgⁱⁿ^al^brack^et^s^,
^res^p^ectⁱ^v^el^y^.^In^2004,^av^erag^e^aⁿ^d^hⁱ^g^h^-^w^a^g^e^e^a^r^ners^are^a^s^s^u^m^e^d^t^o^b^eⁱⁿ^t^h^e^15%^an^d^35%
^m^a^rgⁱⁿ^al^brack^ets^,^res^p^ectiv^ely^.
Workers Exempt From FI CA and S ECA T axes
^State^a^nd^local^governm^e^nt^w^o^rk^ers^p^a^r^ticip^atin^gⁱⁿ^a^lterⁿ^ativ^e^r^etir^em^en^t^s^y^s^tem^s
^(H^I^t^axⁱ^s^m^aⁿ^d^at^ory^f^or^s^t^at^e^aⁿ^d^l^o^cal^g^o^v^e^rn^m^eⁿ^t^w^o^rk^ers^hⁱ^r^ed^sⁱⁿ^c^e^A^pri^l^1,^1986).
^E^l^ection^w^ork^ers^earnⁱⁿ^g^$1,200^or^l^e^s^s^a^y^ear.
^Mⁱ^nis^t^ers^w^h^o^c^h^o^o^s^eⁿ^o^t^to^b^e^co^v^e^r^e^d^,^an^d^cer^tain^r^e^lig^io^u^s^sects.^a
^Federal^w^ork^ers^hⁱ^red^b^ef^ore¹⁹⁸⁴^(t^h^e^H^I^portⁱ^oⁿⁱ^s^m^an^dat^o^ry^f^o^r^a^l^l^f^e^deral^w^ork^e^rs^).
^Co^lleg^e^st^udent^s^w^o^rkⁱⁿ^g^a^t^t^h^e^ir^acad^em^icⁱⁿ^stitu^tioⁿ^s^.
^Hous^ehold^w^ork^ers^earnⁱⁿ^g^l^e^s^s^t^h^an^$1,400^a^y^ear,^o^r^f^or^t^h^os^e^uⁿ^d^er^ag^e^18,^f^o^r^w^h^o^m^h^ou^s^e^h^o^l^d
^w^o^r^k^isⁿ^o^t^t^h^e^ir^p^rⁱⁿ^cip^a^l^o^ccu^p^a^tioⁿ^.
^S^e^l^f-em^p^l^oyed^w^ork^ers^wⁱ^t^h^a^nnua^lⁿ^e^t^e^a^rⁿⁱ^ngs^b^e^l^o^w^$400.^a
^F^e^deral^w^ork^e^rs^first^hⁱ^redⁱⁿ¹⁹⁸⁴^or^later^a^re^m^aⁿ^d^atorily^co^ve^r^e^d.^Elected^of^fⁱ^ce^h^o^lders^,^political
^appoiⁿ^t^ees^,^aⁿ^d^j^u^dg^es^are^m^an^dat^o^ri^l^y^cov^e^red^r^eg^ardl^es^s^o^f^w^h^eⁿ^t^h^eⁱ^r^s^e^rvⁱ^c^e^b^eg^an^.
Med i care Premi u ms : Financing for t he Supplemen tary Medical In surance (SMI)
part of Medicare i s from p remiums paid by enrollees and contributions from t he
government (government contributions make up approx imately 3/4ths of the p rogram’s
income). In 2004, SMI p remiums are $66.60 per m onth. The relatively s mall number o f
people who do not have a s ufficient work reco rd to qualify for HI coverage (40 o r m ore
quarters o f M edicare-covered employm ent), o r who do not have an eligible spouse, pay
HI premiums of $189 per m onth i n 2004 if t h e y h a v e 30 to 39 quarters o f covered
employment, o r $343 per m onth i n 2004 if they have fewer t han 3 0 quarters o f coverage.
Additional r eference: CRS Report 95-543, The Financial Outlook for Social Security and
Medicare.
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