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
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 a id b y e mp lo yee & e mp lo yer Self- empl.
ra teCY OASI DI OASDI HI T otal Maximum taxable earnings
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 .55 4 .20 0 .60 4 .8 6.9 $7,800
1980 4.52 .56 5 .08 1 .05 6 .13 8 .1 $25,900
1990 5.60 .60 6 .20 1 .45 7 .65 15.3 $51,300
1995 5.26 .94 6 .20 1 .45 7 .65 15.3 $61,200 (OASDI); no limit (HI)
2000 5.30 .90 6 .20 1 .45 7 .65 15.3 $76,200 (OASDI); no limit (HI)
2004 5.30 .90 6 .20 1 .45 7 .65 15.3 $87,900 (OASDI); no limit (HI)
NOTE: Until 1991, the amo unt of maximum taxable earnings was the same fo r OASDI and HI. In 1992,
the amo unt of maximum taxable earnings fo r HI was raised to $125,000. In 1993, it was raised to $135,000.
Fo r 1994 and thereafter, the HI tax is levied on all earnings. T ax credits were provid ed to the self-emp lo yed
fo r the period from 1984 through 1989. Fo r 1990 and later, o nly 92.35% of net self-emp lo yment earnings
is taxa b le a nd ha lf o f the SECA taxes so co mp uted is d e d uctib le fo r fed er al inco me tax p ur p o ses.
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 earnera High-w age earnera
Ca lend ar year FICAa SE CAb FI CAa SE CAb
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 Employee share o nly for FICA column. An average-wage earner is assumed to b e someone who earned
a v e r a g e wa g e s t h r o ugho ut hi s o r h e r wo r k i n g ye a r s ( a v e r a g e wa g e s a r e e st i ma t e d fo r 2004). For 1950
t hrough 1990, a high-wage earner is assumed to b e someone who earned the maximum wage l e v e l
subj ect to OASDI and HI taxes. Fo r 2000 and 2004, a high-wage earner is assumed to b e someone
who earns $200,000 a year.b
Fo r 1990 and later, figur es in the table are net of federal income tax deductio n equal to one-half of SECA
taxes. In 1990, the average and high-wage wo rker is assumed to b e in the 15% and 28% marginal tax
brackets, resp ectively. In 2000, they are assumed to b e in t he 15% and 36% marginal brackets,
resp ectively. In 2004, average and high-wage e a r ners are assumed to b e in the 15% and 35%
ma rginal brackets, resp ectively.
Workers Exempt From FI CA and S ECA T axes
State a nd local government w o rkers p a r ticip ating in a lter native r etir ement systems
(HI tax is mand atory for state and lo cal go vernment wo rkers hir ed since April 1, 1986).
Election w orkers earning $1,200 or less a year.
M inist ers who c ho o se no t to b e co ve r e d , and cer tain r e ligio us sects. a
Federal w orkers hired b efore 1984 (the HI portio n is mandato ry fo r all federal workers).
Co lleg e st udent s wo rking a t the ir acad emic institutio ns.
Household w orkers earning less than $1,400 a year, o r for those und er age 18, fo r who m househo ld
wo r k is no t the ir p r incip a l o ccup a tio n.
Self-employed w orkers wi t h a nnua l ne t e a r ni ngs b e l o w $400.a
Federal workers first hired in 1984 or later are mand atorily co ve r ed. Elected office ho lders, political
appointees, and j udges are mandato rily covered r egardless o f when their service b egan.
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
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