Volume 9 Issue 2007

As the 2006 tax year winds down, consider the timing of any bonuses you're planning to give to higher income employees. You may be able to reduce your — and your employees' — FICA taxes.

Background

Once wages surpass the Social Security wage base ($94,200 for 2006 and $97,500 for 2007), employees no longer owe the Social Security portion of the FICA tax (6.2%). (The Medicare portion of 1.45% applies to all wages.) Since employers pay matching FICA taxes, they also pay less tax.

Strategies

• Pay bonuses in 2006 to employees whose earnings have surpassed the Social Security wage base.

• Shift bonus payments to early 2007 for employees whose earnings are unlikely to surpass the Social Security wage base in 2006 but may surpass it in 2007.