FICA wage base increases to $118,500 for 2015

The Social Security Administration has announced that the 2015 taxable wage base for the Social Security portion of FICA is $118,500. That’s a 1.28% hike over the 2014 wage base of $117,000.

The 6.2% Social Security tax is payable by both employers and employees; in 2015, the maximum tax is $7,347.

Except for pretax medical and tax-free fringe benefits, all wages are subject to the 1.45% Medicare portion of FICA, or the 2.35% Medicare portion of FICA for employees earning more than $200,000, since there’s no wage base. (SSA Fact Sheet, 10-22-14)

Exempt amounts for retirees

Retirees who want to return to work are a reliable resource, since they already know the ropes. However, they may lose some of their Social Security benefits. How much they’ll lose depends on an earnings test.

Tip: Retirees usually think they’ll lose more benefits than they actually will, so informing them of the 2015 figures can ease their minds.

FLSA Compliance D

Retirees who return to work during the year they reach full retirement age—between 65 and 67, depending on when they were born—are subject to a modified earnings test that applies only to earnings for the months before that birthday. Wages earned after that birthday don’t reduce Social Security benefits.

For 2015, the exempt amount is $41,880 a year; $3,490 a month. For them, $1 in benefits is lost for every $3 they earn.

A separate earnings test applies to early retirees. Employees who retire before they reach full retirement age and who then return to work, can earn up to $15,720 a year, or $1,310 a month, without losing benefits. For these retirees, $1 in benefits is lost for every $2 they earn.

2015 401(k) contribution limits

The amount employees can contribute to their 401(k) or 403(b) plan accounts increases to $18,000 for 2015, the IRS announced. That’s up from $17,500 in 2014. In addition, employees who are at least 50 years old may contribute $6,000 in pretax catch-up contributions.

Other inflation-adjusted amounts for qualified pension plans include the following:

  • The Section 415 limit (i.e., the overall pretax, after tax and employer contribution) increases $1,000, to 100% of compensation or $53,000
  • The annual compensation limit (i.e., the limit above which contributions can no longer be taken into account increases $5,000, to $265,000
  • The dollar limitation concerning the definition of key employee in a top-heavy plan is unchanged at $170,000
  • The dollar limitation used in the definition of a highly compensated employee remains increases $5,000, to $120,000. (IR-2014-99, 10-23-14)