Social Security and Medicare Taxes and Premiums: Fact Sheet

Social Security and Medicare Taxes and Premiums: Fact Sheet

Order Code 94-28 EPW
Updated January 2, 2003
CRS Report for Congress
Received through the CRS Web
Social Security and Medicare Taxes and
Premiums: Fact Sheet
Geoffrey Kollmann
Domestic Social Policy Division
Taxes: Financing for Social Security—Old Age, Survivors, and Disability Insurance
(OASDI)—and the Hospital Insurance (HI) part of Medicare is provided primarily by
taxes levied on wages and net self-employment income. They are referred to as FICA
taxes (for Federal Insurance Contributions Act) and SECA taxes (for Self-Employment
Contributions Act). The FICA tax is paid by employees and employers; the SECA tax is
paid by the self-employed (about 96% of the work force is required to pay them). Both
have three components: OASI, DI, and HI. The FICA tax was first levied in 1937 at a
rate of 1% (for both employee and employer) on earnings up to $3,000. The current rate
is 7.65% — 6.2% for OASDI, 1.45% for HI. The SECA rate for the self-employed is
12.4% for OASDI, 2.9% for HI. The OASDI tax is levied on earnings up to $87,000 in
2003 (earnings subject to the OASDI tax are indexed to increases in the national average
wage). The HI tax is levied on all earnings. This fact sheet is updated annually.
FICA and SECA Tax Rates (in percent)
Rate paid by employee & employer
Self-empl.
rate
CY
OASI
DI
OASDI
HI
Total
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)
2003
5.30
.90
6.20
1.45
7.65
15.3
$87,000 (OASDI); no limit (HI)
NOTE: Until 1991, the amount of maximum taxable earnings was the same for OASDI and HI. In 1992,
the amount of maximum taxable earnings for HI was raised to $125,000. In 1993, it was raised to $135,000.
For 1994 and thereafter, the HI tax is levied on all earnings. Tax credits were provided to the self-employed
for the period from 1984 through 1989. For 1990 and later, only 92.35% of net self-employment earnings
is taxable and half of the SECA taxes so computed is deductible for federal income tax purposes.
Congressional Research Service ˜ The Library of Congress

CRS-2
Examples of Annual FICA and SECA Tax Payments, Selected Years 1950-2003
Average-wage earnera
High-wage earnera
Calendar year
FICAa
SECAb
FICAa
SECAb
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
2003
$2,801
$4,785
$8,294
$13,319
a Employee share only for FICA column. An average-wage earner is assumed to be someone who earned
average wages throughout his or her working years (average wages are estimated for 2003). For 1950
through 1990, a high-wage earner is assumed to be someone who earned the maximum wage level
subject to OASDI and HI taxes. For 2000 and 2003, a high-wage earner is assumed to be someone
who earns $200,000 a year.
b
For 1990 and later, figures in the table are net of federal income tax deduction equal to one-half of SECA
taxes. In 1990, the average and high-wage worker is assumed to be in the 15% and 28% marginal tax
brackets, respectively. In 2000, they are assumed to be in the 15% and 36% marginal brackets,
respectively. In 2003, average and high-wage earners are assumed to be in the 15% and 35%
marginal brackets, respectively .
Workers Exempt From FICA and SECA Taxes
State and local government workers participating in alternative retirement systems
(HI tax is mandatory for state and local government workers hired since April 1, 1986).
Election workers earning $1,200 or less a year.
Ministers who choose not to be covered, and certain religious sects.
Federal workers hired before 1984 (the HI portion is mandatory for all federal workers).a
College students working at their academic institutions.
Household workers earning less than $1,400 a year, or for those under age 18, for whom household
work is not their principal occupation.
Self-employed workers with annual net earnings below $400.
a Federal workers first hired in 1984 or later are mandatorily covered. Elected office holders, political
appointees, and judges are mandatorily covered regardless of when their service began.
Medicare Premiums: Financing for the Supplementary Medical Insurance (SMI)
part of Medicare is from premiums paid by enrollees and contributions from the
government (government contributions make up approximately 3/4ths of the program’s
income). In 2003, SMI premiums are $58.70 per month. The relatively small number of
people who do not have a sufficient work record to qualify for HI coverage (40 or more
quarters of Medicare-covered employment), or who do not have an eligible spouse, pay
HI premiums of $174 per month in 2003 if they have 30 to 39 quarters of covered
employment, or $316 per month in 2003 if they have fewer than 30 quarters of coverage.
Additional references: CRS Report 95-543, The Financial Outlook for Social Security and Medicare;
CRS Report 94-593, Social Security Taxes: Where Do Surplus Taxes Go and How Are They Used?