Social Security solvency has been a topic

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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 it's solved. This
project is designed to increase the 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-for 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 1937-50 $3,000 1977 $16,500 1988 $45,000 1999 $72,600 1951-54 $3,600 1978 $17,700 1989 $48,000 2000 $76,200 1955-58 $4,200 1979 $22,900 1990 $51,300 2001 $80,400 1959-65 $4,800 1980 $25,900 1991 $53,400 2002 $84,900 1966-67 $6,600 1981 $29,700 1992 $55,500 2003 $87,000 1968-71 $7,800 1982 $32,400 1993 $57,600 2004 $87,900 1972 $9,000 1983 $35,700 1994 $60,600 2005 $90,000 1973 $10,800 1984 $37,800 1995 $61,200 2006 $94,200 1974 $13,200 1985 $39,600 1996 $62,700 2007 $97,500 1975 $14,100 1986 $42,000 1997 $65,400 2008 $102,000 1976 $15,300 1987 $43,800 1998 $68,400 2009 $106,500 Social Security Taxes
Tax
Year(s) FICA 1937-49 1.00% 1950 SECA Tax
Year(s) FICA NA 1971-72 5.20% 7.50% 1.50% NA 1973 5.85% 8.00% 1951-53 1.50% 2.25% 1974-77 5.85% 7.90% 1954-56 2.00% 3.00% 1978 6.05% 8.10% 1957-58 2.25% 3.38% 1979-80 6.13% 8.10%
9.30% SECA 1959 2.50% 3.75% 1981 6.65% 1960-61 3.00 0/o 4.50% 1982-83 6.70% 9.35% 1962 3.13% 4.70% 1984 6.70% 11.30% 1963-65 3.63% 5.40% 1985 7.05% 11.80% 1966 4.20% 6.15% 1986-87 7.15% 12.30% 1967-68 4.40% 6.40% 1988-89 7.51% 13.02% 1969-70 4.80% 6.90% 1990- 7.65% 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 1990- represents 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. Here's an
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 2008 $102,000 7.65% $7,803.00 2009 $106,500 7.65% $8,147.25 --BREAK IN SEQUENCE-- Graded Project Step 2
Introduction
FICA (Federal Insurance Contributions Act) and SECA (SelfEmployment 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't 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 employee's and
employer's contributions, 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 selfemployed (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 taxpayer's contribution 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. Here's an example of a portion of the table:
Tax
Year Wage
Base FICA
Percent Maximum
FICA 1937
1938
1939 $3,000
$3,000
$3,000 1.00%
1.00%
1.00% $30.00
$60.00
$30.00
$60.00
$30.00
$60.00
BREAK IN SEQUENCE 1989 $48,000 7.51% $3,604.80 1990 $51,300 7.65% 2008 $102,000
$106,500 7.65% $7,803.00
$8,147.25 2009 7.65% SECA
Percent Maximum
SECA 0.00%
0.00%
0.00% $ —
$ —
$ — $7,209.60 13.02% $ 6,249.60 $3,924.45
$7,848.90
BREAK IN SEQUENCE 15.30% $ 7,848.90 $15,606.00 15.30% $15,606.00 $16,294.50 15.30% $16,294.50 24"10110010.11M1M1.111.1111111.00100116 Graded Project 2 Times
Maximum
FICA ?1111•81174101/MUMMIONIIIMI1.1101W01111111MMIN0111.111111111• ??•11M.IMMIMMOMIIMM11.11111101MMIMMINIMIMINIONIM11111:111 Notice that the employee and employer contributions to FICA became equivalent to the self-employed taxpayer's contribution 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. SUBMITTING YOUR ASSIGNMENT
Follow this procedure to submit your assignment:
1. On your computer, save a revised and corrected version
of your assignment. Be sure it includes all of the information listed in your assignment.
2. Go to http://www.takeexamsonline.com and log onto
the site.
3. At your homepage, click on Take an Exam.
4. In the box provided, enter the project number:
50082900. Graded Project 5. Click on Submit.
6. On the next screen, enter your e-mail address.
7. If you wish to tell your instructor anything specific
regarding this assignment, enter it in the Comments
box.
8. Attach your file or files as follows:
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file.
9. Click on Submit. After you submit the assignment for evaluation, you should receive a
confirmation e-mail with a tracking number. If you don't receive this
number within 24 hours, you must resubmit the assignment. Graded Project
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