Final answer:
In 2014, employees who earned over $117,000 were not required to pay Social Security payroll taxes on the excess amount, as that was the wage base limit for Social Security contributions. This represents a form of regressive tax structure as higher earners pay a smaller percentage of their income towards Social Security. The wage base is indexed to increase based on inflation.
Step-by-step explanation:
In 2014, if an employee finally made over $117,000 in wages, that would mean they reached the maximum income subject to Social Security payroll taxes for that year. The Social Security program is funded by these payroll taxes, which are imposed on income earned up to a certain limit that is adjusted annually for inflation.
Beyond this threshold, no additional Social Security taxes would be levied on earnings. Therefore, for income beyond this cap, the employee would not have to pay Social Security taxes on it, effectively reducing their overall payroll tax rate on additional income.
This limit, or the 'Social Security wage base', is an example of a regressive tax structure, as it caps the amount of income subject to Social Security taxes. As a result, individuals earning above the wage base pay a smaller percentage of their total income towards Social Security compared to those earning below the cap. It is important to note that different income sources, such as investments, are not subject to these payroll taxes.
The Social Security wage base and its increases are forms of indexing, designed to keep pace with inflation; hence, the cap increases most years. In 2013, the wage base was set at $113,700 and it increased to $117,000 in 2014.