Employee Benefits—2007 Pension Plan Limitations: The IRS announced cost-of-living adjustments applicable to dollar limitations for pension plans and related amounts for 2007. Some amounts change due to cost-of-living adjustments, while others are Code-required changes. For instance, the (1) benefit limit for defined benefit plans increases from $175,000 to $180,000; (2) defined contribution plan limit goes up from $44,000 to $45,000; (3) compensation limit for determining benefits and contributions increases from $220,000 to $225,000; but (4) definition of a highly compensated employee stays at $100,000. Furthermore, the (1) SEP contribution threshold increases from $450 to $500; (2) compensation amount for defining a control employee for fringe benefit valuation purposes goes up from $85,000 to $90,000; and (3) limitation for SIMPLE retirement accounts increases from $10,000 to $10,500. News Release IR-2006-162 .
Employment Taxes—2007 Social Security Wage Base: In a news release dated 10/18/06, the Social Security Administration announced that the wage base for computing the social security tax (OASDI) rises to $97,500 in 2007 from $94,200 in 2006, an increase of about 3.5%. As in prior years, there is no limit to the wages subject to the Medicare tax. The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, remains at 7.65% for 2007. Therefore, the maximum social security tax that employees and employers will each pay in 2007 is $6,045. The self-employment tax rate remains at 15.3% (combined social security tax rate of 12.4% and Medicare tax rate of 2.9%). Therefore, the maximum social security tax for a self-employed individual in 2007 will be $12,090.