First Cost of Living Adjustment and Taxable Wage Base Increase in Three Years
December 9, 2011 - NORTON, MA - The prior two years have been the only years in which there has been no COLA increase since 1975. For the first time in three years, monthly Social Security and Supplemental Security Income (SSI) benefits for more than 60 million Americans will increase by 3.6 percent in 2012. The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2011.
The adjustment follows two years of no increase due to a 2.1% decline in the Consumer Price Index (CPI) from the third quarter of 2008 to the third quarter of 2009, and the absence of an increase from the third quarter of 2009 to the third quarter of 2010 that “catches up” to where the CPI was at its high point in the third quarter of 2008.
In addition, the taxable wage base can only be increased if there’s also a benefit increase due to a cost-of-living adjustment. The Social Security Act does not allow the taxable wage base to go down from one year to the next. The lack of a COLA for 2010 and 2011 also meant that there was no increase in the amount of wages subject to taxation under FICA. However, in 2012 the taxable wage base increases to $110,100. This is the first time the national average wages has increased since 2008.
The $110,100 wage base for 2012 will apply only to the 6.2% Social Security tax portion of FICA as the “2011 tax holiday”, which temporality reduced an employee’s Social Security tax to 4.2%, is expected to expire on January 1, 2012. There is no limit on the amount of earnings subject to the 1.45% Medicare portion of the tax.
What does this mean for SUB-Pay Plans? Companies will still receive an immediate and guaranteed 7.65% FICA savings on each payment made to their separated employees (6.2% of the Social Security tax up to the 2012 taxable wage base and no limit on the 1.45% Medicare portion of the tax). Plan participants will save 6.2% of their Social Security tax up to the taxable wage base, instead of the current and expiring 4.2%, and save 1.45% of their Medicare portion.
About Total Management Solutions
Total Management Solutions has pioneered the next generation of corporate severance solutions known as Severance 2.0. These custom solutions can be implemented within 3-4 weeks. TMS provides a dedicated client services team for every corporation with support services available to the separated employees who have any questions about their transition benefit plan. This dedicated TMS Client Services team is staffed with experienced professionals who know first-hand what separated employees are experiencing during reductions-in-force. This team helps ensure that the separated employee population is cared for and treated with the utmost respect, understanding and compassion while providing companies with more effectiveness, efficiency, and empathy; and less hassles, costs, and risks.