The Social Security Administration just released the following year 2002 changes:
- Tax rates. The combined social security and Medicare tax rate remains at 15.3% for year 2002, for both employees and self-employed. Employers and employees each pay half of this tax (7.65% each). Self-employed workers pay the entire amount, which is referred to as the “self-employment tax.” An employer can pay some or all of a self-employed worker’s self-employment tax, but any amount it pays must be reported as taxable income to the worker.
- Amount of earnings subject to tax. The 15.3% tax rate consists of two components: (1) a Medicare hospital insurance (HI) tax of 2.9%, and (2) an “old age, survivor and disability” or “social security” tax of 12.4%. There is no maximum amount of income subject to the Medicare hospital insurance (2.9%) “HI” tax rate. The tax is imposed on all income regardless of amount. For the year 2002, the maximum earnings subject to the social security portion of self employment taxes (the 12.4% amount) increases to $84,900—up from $80,400 in 2001.
- Retired workers. In 2002, workers from 62 to 65 years of age can earn up to $11,280 without having their social security benefits reduced. For every $2 earned above this amount, a worker’s social security benefits are reduced by $1. Workers who are 65 years of age or older can earn any amount without a reduction in their social security benefits.
Example. Pastor T is age 63, and is working as a minister of visitation at a church at an annual salary of $26,000. He is wondering whether or not to begin receiving social security retirement benefits. If Pastor T begins receiving social security benefits, his benefits will be reduced by $1 for every $2 of earned income over $11,280. Since Pastor T has earned income of $14,720 in excess of $11,280, his social security benefits would be reduced by a whopping $7,360.
- Average benefits. The maximum social security benefit for workers retiring at age 65 on January 1, 2002 increases to $1,660 per month ($19,920 per year). The average benefit is $874 per month ($10,488 per year) for all retired workers; $1,454 per month ($17,448 per year) for a retired couple who each receive benefits); $1,764 per month ($21,168 per year) for a widowed mother with two minor children; and $815 per month ($9,780 per year) for a disabled worker.
- Social Security recipients. At the end of 2001, more than 45,000,000 persons received Social Security benefits, of which 63% were retired workers, 20% were disabled, and 10% were surviving spouses.
This content originally appeared in Church Treasurer Alert, December 2001.