Social Security MaximumEarnings Outpace CPI

Physician's Money Digest, April 2006, Volume 13, Issue 4

Wall Street


Despite a 3.5% inflation rate, the maximumearnings subject to Social Securitytax rose 4.7% in 2006. Up from $90,000 inprevious years, the Social Security tax isnow capped at annual salaries up to$94,200. According to the , the federal government derivedthis number from the changes in wages asmeasured by a national index—not theconsumer price index (CPI), which tracksthe prices of all goods and sets the rate ofinflation. If you earn more than $94,200,you will pay no more than $5840 this yearin taxes, and your employer will pay thesame amount. For self-employed physicians,the tax rate is capped at the sameannual earnings amount, but a 12.4% taxrate applies, which can be offset by taxprovisions. In addition, a 1.45% Medicaretax applies to both employee and employer,which translates into 2.9% for the self-employed.Unlike the Social Security tax,the Medicare tax is not capped. A physicianwho owns their practice and earns$150,000 maxes out the Social Securitytax at $5840 but will pay an additional$4350 in Medicare tax.