Social Security Earnings Thresholds Rising

Earnings of up to $87,900 will be taxable for Social Security purposes in 2004 for those subject to Social Security, which in the federal employment realm means those under the FERS and CSRS-Offset retirement systems, although not those under CSRS. The “maximum taxable earnings” amount, which is $87,000 for 2003, is the amount subject to the 6.2 percent “FICA” payroll tax; there is no limit on the 1.45 percent Medicare tax that sometimes is lumped in with the FICA tax and generically called the Social Security tax. FERS employees pay the FICA tax only up to the maximum taxable earnings amount, while those under CSRS-Offset continue to pay it above that amount, with the money going into the civil service retirement fund rather than the Social Security trust fund. Meanwhile, the annual earnings needed for Social Security-covered employment to be considered “substantial” for purposes of the windfall elimination provision-which primarily affects CSRS employees who earn enough Social Security credits through other employment to qualify for a Social Security benefit-is rising to $16,275 in 2004 from $16,125 this year.