Background
Social Security solvency has been a topic of significant debate in recent years. As the
population ages, life expectancy increases, and fewer workers fund the PAYGO system,
this topic is likely to remain important until itàsolved. This project is designed to
increase t
he depth of your understanding of how Social Security taxes are imposed and how to
research Social Security insurance and retirement benefits.
Take a moment to review the tables below, which you studied in Assignment 19. These
are the wage bases to which the OASDI component of Social Security applies¯r the
2009 calendar and tax year, 6.2% of $106,500 (7.65%, up to this wage base ceiling, for
both OASDI and Medicare).
Social Security Wage Base through the Years
Tax Year Wage
Base
Tax Year Wage
Base
Tax Year Wage
Base
Tax Year Wage Base
1937
J$3,000
1977
$16,50
0
1988
$45,000
1999
$72,600
1951
t
$3,600
1978
$17,70
0
1989
$48,000
2000
$76,200
1955
x
$4,200
1979
$22,90
0
1990
$51,300
2001
$80,400
1959
µ
$4,800
1980
$25,90
0
1991
$53,400
2002
$84,900
1966
·
$6,600
1981
$29,70
0
1992
$55,500
2003
$87,000
1968
ñ
$7,800
1982
$32,40
0
1993
$57,600
2004
$87,900
1972
$9,000
1983
$35,70
0
1994
$60,600
2005
$90,000
1973
$10,80
0
1984
$37,80
0
1995
$61,200
2006
$94,200
1974
$13,20
0
1985
$39,60
0
1996
$62,700
2007
$97,500
1975
$14,10
0
1986
$42,00
0
1997
$65,400
2008
$102,000
1976
$15,30
0
1987
$43,80
0
1998
$68,400
2009
$106,500
Social Security Taxes
Tax
Year(s)
SECA
FICA
Tax
Year(s)
19379
1.00%
NA
1971·2
5.20%
7.50%
1950
1.50%
NA
1973
5.85%
8.00%
1951s
1.50%
2.25%
1974·7
5.85%
7.90%
1954v
2.00%
3.00%
1978
6.05%
8.10%
1957x
2.25%
3.38%
1979-80
6.13%
8.10%
1959
2.50%
3.75%
1981
6.65%
9.30%
1960±
3.00%
4.50%
1982¸3
6.70%
9.35%
1962
3.13%
4.70%
1984
6.70%
11.30%
1963µ
3.63%
5.40%
1985
7.05%
11.80%
1966
4.20%
6.15%
1986¸7
7.15%
12.30%
SECA
FICA
1967¸
4.40%
6.40%
1988¸9
7.51%
13.02%
1969ð
4.80%
6.90%
1990·.65%
15.30%
FICA Tax (1937), SECA Tax (1951), SECA tax subsidy phase-out completed & SECA taxes
adjusted & partially deductible (1990)
Remember, the 7.65% for 19902epresents the 6.2 percent OASDI plus the 1.45
percent Medicare tax.
Procedure
Step 1
Combine the wage base and FICA tax rates applied to these wage bases into a single
Excel file. In the process, compute the maximum employee (and employer) contribution
to Social Security, based only on the maximum wage base. Hereàan example of a
portion of the table:
Tax Year
Wage Base
Percent FICA
Maximum
1937
$3,000
1.00%
$30.00
1938
$3,000
1.00%
$30.00
BREAK IN SEQUENCE
2008
$102,000
7.65%
$7,803.00
2009
$106,500
7.65%
$8,147.25
Step 2
Introduction
FICA (Federal Insurance Contributions Act) and SECA (Self- Employment Contributions
Act) represent the employer/ employee contributions to OASDI and Medicare and
contributions for the self-employed or sole proprietor. Notice that a self-employed
individual didn have to contribute to Social Security from 1937 through 1950.
Before the 1980s, self-employed taxpayers made a contribution to Social Security that
was less than the employeeàand employeràcontributions, combined. However, one of
the solutions to the Social Security shortfall at that time was to phase in a catch-up
provision, where, starting in 1990, the employer (7.65%) and employee (7.65%) and the
self-employed (15.3%) make equivalent contributions. Effectively, the self-employed
taxpayer makes both employer and employee contributions.
Procedure
Into the Excel file you completed in Step 1, add columns for the SECA tax rates applied
to these wage bases. In the process, compute the maximum self-employed taxpayerÊcontribution to Social Security, based only on the maximum wage base. Also add a
column for both employer and employee FICA components, so that we can compare the
combined employer and employee contributions to FICA to the SECA contributions.
Hereàan example of a portion of the table:
Tax
Year
Wage
Base
FICA
Percent
Maximum
FICE
1937
$3,000
1.00%
$30.00
1938
$3,000
1.00%
$30.00
2 Times
Maximum
FICE
SECA
Percent
Maximum
SECA
$60.00
0.00%
$¤60.00
0.00%
$±939
$3,000
1.00%
$30.00
$60.00
0.00%
$— BREAK IN SEQUENCE ±989
$48,000
7.51%
$3,604.80
$7,209.60
13.02%
$ 6,249.60
1990
$51,300
7.65%
$3,924.45
$7,848.90
15.30%
$ 7,848.90
’EAK IN SEQUENCE ²008
$102,000
7.65%
$7,803.00
$15,606.00
15.30%
$15,606.00
2009
$106,500
7.65%
$8,147.25
$16,294.50
15.30%
$16,294.50
Notice that the employee and employer contributions to FICA became equivalent to the
self-employed taxpayeràcontribution to SECA in 1990.
Step 3
Prepare a simple Excel graphic to illustrate the combined dollar contributions of
employee and employer to FICA compared to those for the self-employed taxpayer to
SECA from 1937 through 2009.
Step 4
Under current law, a taxpayer with a salary of $110,000 for 2009 would pay only 7.65%
on the first $106,500. The same would be said for the employer. However, also under
current law, any amount in excess of the $106,500 wage base and earned income
amount for 2009 would continue to be subject to the 1.45% Medicare contribution by
both employer and employee, for a total of 2.9%.
Separately compute the amounts, in addition to the $16,294.50 from the above table,
that the employee and employer would have to pay for Medicare, assuming a salary
level of $110,000 for the 2009 calendar and tax year. Show your calculations.
I found this assignment helpful

Purchase answer to see full
attachment