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The Online Advisor

October 2007


What's New in Taxes

If you can, plan for coming payroll tax increases


Many Americans pay more payroll taxes than federal income tax. That’s the FICA tax you see on your W-2 wage statement - a combination of 6.2% social security tax and 1.45% Medicare tax. The social security tax is assessed on up to $97,500 of earnings in 2007, and the Medicare tax has no earnings limit. Your employer matches the FICA tax you pay.

Self-employed taxpayers pay an equivalent self-employment tax of 12.4% on net earnings up to $97,500 and 2.9% Medicare tax on all earnings (with a deduction for 50% of the tax paid).

The Social Security Administration is projecting that for 2008, the wage base for social security taxes will increase to $102,300. So if you’ll meet or pass the 2007 taxable wage base of $97,500, you might consider accelerating additional income into this year. That income would not be subject to social security tax. Employees generally have few opportunities to move income between years, but self-employed individuals may be able to do some planning.

The Social Security Administration has projected that the wage base will increase to $141,900 by 2016. As significant as the payroll tax bite can be, doing what you can to minimize this tax is advisable. For guidance in this area, give us a call.

For details or for assistance with your tax planning, give our office a call.

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