The Social Security Administration (SSA) announced that the wage and self-employment income base for the Social Security tax will rise next year. The size of the increase caught many tax experts off-guard: It reflects the largest hike—in both actual dollars and percentage—since 2002. For 2006, a person's first $94,200 in wages or self-employment income will be subject to the Social Security tax (up from $90,000 for 2005). As in previous years, all wages and self-employment income are subject to the Medicare portion of the tax. For employees, the Social Security tax rate is 6.2 percent and the Medicare tax rate is 1.45 percent. (Employers pay the same rates on.) Self-employed people pay a 12.4 percent Social Security tax on the first $94,200 of self-employment income, plus a 2.9 percent Medicare tax on all income, without limit.
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