How is the FICA taxable wage base adjusted each year?

The FICA taxable wage base is adjusted each year based on changes in the average wage index, which is determined by the Social Security Administration. This adjustment directly correlates with any cost-of-living increases to Social Security benefits. When the average wage index rises, the taxable wage base also increases, ensuring that it reflects current economic conditions and maintains the program's funding requirements.

This method of adjustment helps to keep the Social Security system fiscally sound by aligning contributions with wage growth in the economy. The purpose of this alignment is to ensure that as wages increase, the amount of income subject to Social Security taxes also increases, helping to support beneficiaries in the long run. Thus, the correct choice reflects the mechanism by which the wage base is regularly revised to account for inflationary pressures and cost-of-living adjustments.