BACKGROUNDSocial Security solvency has been a topic of significant debatein recent years. As the population ages, life expectancyincreases, and fewer workers fund the PAYGO system, thistopic is likely...

BACKGROUNDSocial Security solvency has been a topic of significant debatein recent years. As the population ages, life expectancyincreases, and fewer workers fund the PAYGO system, thistopic is likely to remain important until it’s solved. Thisproject is designed to increase the depth of your understanding of how Social Security taxes are imposed and how toresearch Social Security insurance and retirement benefits.Take a moment to review the tables below, which you studiedin Assignment 19. These are the wage bases to which theOASDI component of Social Security applies-for the 2009calendar and tax year, 6.2% of $106,500 (7.65%, up to thiswage base ceiling, for both OASDI and Medicare).Social Security Wage Base through the YearsTaxYear WageBase TaxYear WageBase TaxYear WageBase TaxYear WageBase 1937-50 $3,000 1977 $16,500 1988 $45,000 1999 $72,600 1951-54 $3,600 1978 $17,700 1989 $48,000 2000 $76,200 1955-58 $4,200 1979 $22,900 1990 $51,300 2001 $80,400 1959-65 $4,800 1980 $25,900 1991 $53,400 2002 $84,900 1966-67 $6,600 1981 $29,700 1992 $55,500 2003 $87,000 1968-71 $7,800 1982 $32,400 1993 $57,600 2004 $87,900 1972 $9,000 1983 $35,700 1994 $60,600 2005 $90,000 1973 $10,800 1984 $37,800 1995 $61,200 2006 $94,200 1974 $13,200 1985 $39,600 1996 $62,700 2007 $97,500 1975 $14,100 1986 $42,000 1997 $65,400 2008 $102,000 1976 $15,300 1987 $43,800 1998 $68,400 2009 $106,500 Social Security TaxesTaxYear(s) FICA 1937-49 1.00% 1950 SECA TaxYear(s) FICA NA 1971-72 5.20% 7.50% 1.50% NA 1973 5.85% 8.00% 1951-53 1.50% 2.25% 1974-77 5.85% 7.90% 1954-56 2.00% 3.00% 1978 6.05% 8.10% 1957-58 2.25% 3.38% 1979-80 6.13% 8.10%9.30% SECA 1959 2.50% 3.75% 1981 6.65% 1960-61 3.00 0/o 4.50% 1982-83 6.70% 9.35% 1962 3.13% 4.70% 1984 6.70% 11.30% 1963-65 3.63% 5.40% 1985 7.05% 11.80% 1966 4.20% 6.15% 1986-87 7.15% 12.30% 1967-68 4.40% 6.40% 1988-89 7.51% 13.02% 1969-70 4.80% 6.90% 1990- 7.65% 15.30% FICA Tax (1937- ), SECA Tax (1951- ), SECA tax subsidy phase-out completed & SECA taxesadjusted & partially deductible (1990- ) Remember, the 7.65% for 1990- represents the 6.2 percentOASDI plus the 1.45 percent Medicare tax. PROCEDUREStep 1Combine the wage base and FICA tax rates applied to thesewage bases into a single Excel file. In the process, computethe maximum employee (and employer) contribution to SocialSecurity, based only on the maximum wage base. Here’s anexample of a portion of the table:TaxYear WageBase PercentFICA Maximum 1937 $3,000 1.00% $30.00 1938 $3,000 1.00% $30.00 2008 $102,000 7.65% $7,803.00 2009 $106,500 7.65% $8,147.25 –BREAK IN SEQUENCE– Graded Project Step 2IntroductionFICA (Federal Insurance Contributions Act) and SECA (SelfEmployment Contributions Act) represent the employer/employee contributions to OASDI and Medicare and contributions for the self-employed or sole proprietor. Notice that aself-employed individual didn’t have to contribute to SocialSecurity from 1937 through 1950.Before the 1980s, self-employed taxpayers made a contribution to Social Security that was less than the employee’s andemployer’s contributions, combined. However, one of thesolutions to the Social Security shortfall at that time was tophase in a catch-up provision, where, starting in 1990, theemployer (7.65%) and employee (7.65%) and the selfemployed (15.3%) make equivalent contributions. Effectively,the self-employed taxpayer makes both employer andemployee contributions. ProcedureInto the Excel file you completed in Step 1, add columns forthe SECA tax rates applied to these wage bases. In theprocess, compute the maximum self-employed taxpayer’s contribution to Social Security, based only on the maximum wagebase. Also add a column for both employer and employee FICAcomponents, so that we can compare the combined employerand employee contributions to FICA to the SECA contributions. Here’s an example of a portion of the table:TaxYear WageBase FICAPercent MaximumFICA 193719381939 $3,000$3,000$3,000 1.00%1.00%1.00% $30.00$60.00$30.00$60.00$30.00$60.00BREAK IN SEQUENCE 1989 $48,000 7.51% $3,604.80 1990 $51,300 7.65% 2008 $102,000$106,500 7.65% $7,803.00$8,147.25 2009 7.65% SECAPercent MaximumSECA 0.00%0.00%0.00% $ —$ —$ — $7,209.60 13.02% $ 6,249.60 $3,924.45$7,848.90BREAK IN SEQUENCE 15.30% $ 7,848.90 $15,606.00 15.30% $15,606.00 $16,294.50 15.30% $16,294.50 24"10110010.11M1M1.111.1111111.00100116 Graded Project 2 TimesMaximumFICA ?1111•81174101/MUMMIONIIIMI1.1101W01111111MMIN0111.111111111• ??•11M.IMMIMMOMIIMM11.11111101MMIMMINIMIMINIONIM11111:111 Notice that the employee and employer contributions to FICA became equivalent to the self-employed taxpayer’s contribution to SECA in 1990. Step 3Prepare a simple Excel graphic to illustrate the combineddollar contributions of employee and employer to FICAcompared to those for the self-employed taxpayer to SECAfrom 1937 through 2009. Step 4Under current law, a taxpayer with a salary of $110,000 for2009 would pay only 7.65% on the first $106,500. The samewould be said for the employer. However, also under currentlaw, any amount in excess of the $106,500 wage base andearned income amount for 2009 would continue to be subjectto the 1.45% Medicare contribution by both employer andemployee, for a total of 2.9%.Separately compute the amounts, in addition to the$16,294.50 from the above table, that the employee andemployer would have to pay for Medicare, assuming a salarylevel of $110,000 for the 2009 calendar and tax year. Showyour calculations. SUBMITTING YOUR ASSIGNMENTFollow this procedure to submit your assignment:1. On your computer, save a revised and corrected versionof your assignment. Be sure it includes all of the information listed in your assignment.2. Go to http://www.takeexamsonline.com and log ontothe site.3. At your homepage, click on Take an Exam.4. In the box provided, enter the project number:50082900. Graded Project 5. Click on Submit.6. On the next screen, enter your e-mail address.7. If you wish to tell your instructor anything specificregarding this assignment, enter it in the Commentsbox.8. Attach your file or files as follows:? Click on the first Browse box.? Locate the file you wish to attach.? Double-click on the file.? If you have more than one file to attach, click on thenext Browse box and repeat the above steps for eachfile.9. Click on Submit. After you submit the assignment for evaluation, you should receive aconfirmation e-mail with a tracking number. If you don’t receive thisnumber within 24 hours, you must resubmit the assignment. Graded Project