Social Security Taxable Wage Base Increasing in 2018

Social Security Taxable Wage Base Increasing in 2018

The Social Security Administration (SSA) has announced that the maximum earnings subject to Social Security (OASDI) tax will increase from $127,200 to $128,700 in 2018 (an increase of $1,500) [SSA News Release, Social Security Announces 2.0 Percent Benefit Increase for 2018, 10/13/17; SSA Fact Sheet, 2018 Social Security Changes].

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers — one for Old Age, Survivors and Disability Insurance (OASDI, commonly known as the Social Security tax), and the other for Hospital Insurance (HI, commonly known as the Medicare tax).

For 2018, the FICA tax rate for both employers and employees is 7.65% (6.2% for OASDI and 1.45% for Medicare).

For 2018, an employer must withhold:

      • (a)  6.2% Social Security tax on the first $128,700 of employee wages (maximum tax is $7,979.40; i.e., 6.20% × $128,700), plus
      • (b)  1.45% Medicare tax on the first $200,000 of employee wages, plus
      • (c)  2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all employee wages in excess of $200,000.

 
Social Security and Supplemental Security Income (SSI) benefits will increase by 2.0% in 2018. The average monthly Social Security benefit will increase from $1,360 to $1,404, and the maximum federal SSI monthly payment to an individual will increase from $735 to $750. The maximum federal SSI monthly payment to a couple will increase from $1,103 to $1,125 in 2018. The amount of earnings that is required in order to be credited with a quarter of Social Security coverage will increase from $1,300 to $1,320.

The retirement earnings test remains in effect for individuals below normal retirement age (age 65 to 67, depending on year of birth) who continue to work while collecting Social Security benefits. For affected individuals, $1 in benefits will be withheld for every $2 in earnings above $17,040 in 2018 (up from $16,920 in 2017). For working individuals collecting benefits who reach normal retirement age (NRA) in 2018, $1 in benefits will be withheld for every $3 in earnings above $45,360 (up from $44,880 in 2017), until the month that the individual reaches NRA. After that month, there is no limit on earnings.

Payroll Partners is committed to helping clients stay informed about payroll and human resource news, developments and current events. This article is intended to provide readers with general information on human resources matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular human resources practice. All efforts have been made to assure the accuracy of the information. Payroll Partners does not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular human resources practice. If you are seeking human resources advice, you are encouraged to consult a human resources professional.

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