Table H: Federal Information, Taxes, Income Ceilings, and Minimum Wage Standards SR 05-02, 01/05 (FSM-A)

FIT

(Federal Income Tax)

FICA

(Medicare Tax)

FICA

(Social Security Tax)

Minimum Wage

See IRS Circular E

1.45%

7.65%

$5.15/hour

1.  Self-employed individuals pay a FICA withholding amount of 15.3% (2.9% for Medicare and 12.4% for Social Security tax), but they deduct one-half of their FICA tax paid on their federal income taxes. This reduces their FICA contribution to 7.65%.

2.  The income ceiling subject to the full FICA withholding rate is $90,000.

3.  There is no upper limit to the amount of gross earned income from which Medicare may be withheld.

4.  For retirees born in 1939, full retirement age is 65 years and 4 months; for those born in 1940, full retirement age is 65 years and 6 months. Full retirement age will gradually increase to age 67 for those born in 1960 or later.

5.  Individuals at full retirement age and older are not subject to a maximum earnings test and can earn any amount of money without affecting Social Security benefits.

6.  The maximum amount an individual under the full retirement age may earn without affecting Social Security benefits is $12,000 a year or $1,000 per month.

7.  A modified earnings test applies the year in which an individual reaches full retirement age. For any months in a calendar year before the individual reaches full retirement age, the individual may earn up to a total of $31,800 a year or $2,650 per month without affecting Social Security benefits.

EXAMPLE

Mr. Green reaches full retirement age on May 2. His cumulative monthly earnings for January, February, March, and April are $9,000. His Social Security benefits are unaffected. Beginning on May 1, his earnings are no longer subject to an earnings test.