Legal News Alert #117

Social Security Announces Changes for 2005

The Social Security wage base for 2005 is $90,000 up from $87,000 in 2004. Beginning January 1, 2005, employers should withhold Social Security taxes (6.2 percent) from employees' wages up to $90,000 and withhold the Medicare tax (1.45 percent) on all wages.

Employers must match the tax payments withheld from employees' wages. Employees earn one Social Security credit for each $920 in earnings, up to a maximum of four credits for the year.

How Work Affects Social Security

An employee can get Social Security retirement or survivors benefits and work at the same time. However, benefits could be reduced if the employee is not full retirement age* and earns more than $12,000 in 2005. (In 2005, full retirement age is age 65 and 6 months.) If an employee is younger than age 65 and 6 months for all of 2005, Social Security will deduct $1 from the Social Security benefit for each $2 earned above the $12,000.

If an employee reaches full retirement age during 2005, Social Security will deduct $1 in benefits for every $3 earned above $31,800 in 2005 until the month the employee turns 65 and 6 months.

If employees reach full retirement age or older and choose not to receive Social Security benefits right away, it could mean a higher benefit for them later in life and an increase in the future benefit amounts for their families and survivors. However, when employees reach full retirement age, they can work and receive unreduced Social Security retirement benefits no matter how much they earn.

Employees receiving Social Security disability or Supplemental Security Income benefits must report all wages, no matter how little they earn.

For more detailed information on how work affects your Social Security benefits, visit our web site at www.MichiganAttorney.com and click on our Legal Links page. Then click on the link to Social Security's Web site for the publication "How Work Affects Your Benefits."

*The full retirement age is increasing in gradual steps until it reaches age 67. This change began in 2003, and it affects people born in 1938 or later.

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