TAX NEWS - DECEMber 2009

No Social Security Wage Base Change for 2010

Since there will be no cost-of-living adjustment (COLA) for Social Security beneficiaries in 2010, the Social Security wage base will remain $106,800. Section 230(a) of the Social Security Act prohibits an increase in the wage base if there is no COLA for Social Security beneficiaries. Beginning January 1, 2010, employers should continue to withhold Social Security taxes (6.2 percent) from employees' wages up to $106,800 and withhold the Medicare tax (1.45 percent) on all wages. Employers must match the tax payments withheld from employees' wages.

In 2010, employees will earn one Social Security credit for each $1,120 in earnings, up to a maximum of four credits for the year. The full retirement age for people born in 1944 is now 66. However, when employees reach full retirement age, they can work and receive unreduced Social Security retirement benefits.

It's also important to note that if there is no COLA, Section 203(f)(8) of the Social Security Act prohibits an increase in theretirement earnings test exempt amounts. Therefore, if your employees are less than full retirement age when they begin to receive benefits, the amount they can earn in 2010 without their benefits being reduced is unchanged:

- Social Security beneficiaries who haven't reached full retire-ment age can earn $14,160 before their benefits are reduced. For every $2 a person earns over $14,160 before the year of his or her full retirement age, $1 is withheld from benefits.
- In the year employees reach full retirement age, $1 in benefits is deducted for each $3 they earn above $37,680 until the month the employees reach full retirement age.
- Benefits are not reduced when employees are full retire-ment age or older, no matter how much they earn.
- Employees receiving Social Security disability benefits