The Social Security tax rate (excluding the Medicare tax) for employees will remain at 6.2%. However, in 2008 the maximum amount of employee earnings that is subject to the social security tax will be $102,000. (In 2007 the rate was 6.2% on the first $97,500 of earnings.) Since the Social Security tax is withheld from employees and it is matched by the employer, the total Social Security tax (excluding Medicare tax) is 12.4% on the first $102,000 of wages, salaries, etc in 2008.

The Medicare tax rate remains at 1.45% on all earnings. The Medicare tax of 1.45% is withheld from every dollar of employees’ earnings (wages, salaries, etc.) and is also matched by the employer. This results in the total Medicare tax of 2.9% on all employees’ earnings in 2008.

The combined Social Security and Medicare tax, also known as FICA, will be 7.65% withheld from employee earnings up to $102,000 in the year 2008. With the employer’s matching, the total combined Social Security and Medicare tax will be 15.3% on the first $102,000 of earnings in 2008. Each employee’s earnings above $102,000 will be subject only to the Medicare tax.

Self-employed individuals are responsible for both the employee and the employer portion of these taxes.

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

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