Next year, millions more U.S. workers than in 2016 will pay higher Social Security taxes thanks to the Social Security Administration's (SSA's) 2017 tax rate and wage base. The SSA has raised the maximum amount of earnings subject to the Social Security payroll tax by 7.3 percent to $127,200—up by $8,700 from the $118,500 maximum for 2016 and 2015.
The SAA notes, "Of the estimated 173 million workers who will pay Social Security taxes in 2017, about 12 million will pay more because of the increase in the taxable maximum." The adjustment, effective Jan. 1, is the largest one-year bump since 1983, and stems from the government's estimate of real-wage growth.
Employee Tax Rate Remains at 2016 Level
Employers should note other key points of the 2017 tax rate and wage base:
- The employee tax rate (the combined rate for Social Security and Medicare) remains unchanged from 2016, at 7.65 percent.
- The maximum Social Security tax employees and employers will each pay in 2017 is $7,886.40. There will be no limit for Medicare wages.
- All Social Security wages will be taxed at 6.2 percent, up to the wage base.
- Covered Medicare wages will be taxed at 1.45 percent, with an additional 0.9 percent assessed on employee wages higher than $200,000. Employers will not pay the additional 0.9 percent. It should be noted that although the $200,000 is the threshold for employers to withhold the additional 0.9%, the individual reconciles this additional Medicare withholding on the personal income tax return. The threshold changes depending on their filing status; as well any additional income subject to Medicare tax will be taken into account. The thresholds are: married filing jointly $250,000, married filing separately $125,000 and single/head of household $200,000.
- Self-employed individuals are subject to a Medicare tax rate of 2.9 percent and will be taxed at 12.4 percent for Social Security wages up to the wage base. Additionally, self-employment income is subject to the additional Medicare tax of 0.9% of income that exceeds the thresholds.
The SSA has posted a fact sheet summarizing the Social Security changes.
As the Society for Human Resource Management notes, "Social Security is financed by a 12.4 percent tax on wages up to the taxable-earnings cap, with half (6.2 percent) paid by workers and the other half paid by employers. This taxable wage base usually goes up each year."
For more information on the 2017 SSA changes, visit the agency's website.