The maximum social security payroll taxes paid by employees (and employers) will increase more than $500 in 2017. This is a result of the Social Security Administration’s (SSA) announcement that the social security wage base, the amount of gross wages subject to social security taxes, will increase to $127,200 in 2017, a 7.3% increase over the $118,500 social security wage base for 2016. This is the largest percentage increase in the social security wage base in over 30 years. That increase translates into a maximum payroll tax of of $7,886.40 withheld from the higher paid employees’ paycheck for 2017, or $539.40 more than the maximum $7,347 deducted for those same employees in 2016. Employers, who must match their employee’s social security tax contributions, will also pay that additional tax amount. The SSA estimates that the wage base increase will affect about 12 million of the 173 million workers who pay Social Security taxes.
In sharp contrast, the SSA also announced that the more than 65 million recipients who receive social security benefits will only get a 0.3% cost-of-living adjustment (COLA) increase in 2017. This after getting no increase in 2016. That translates into a $4 a month increase (from $1,296 to $1,300) for the average widow or widower and a $6 increase (from $2,254 to $2,260) for the average retired couple receiving benefits.
How are these increases determined? Since 1975, the increase in social security benefits has been linked to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The COLA is determined each October based on the CPI-W for the 12 months ended September 30. To determine 2017’s skimpy 0.3% increase, the CPI-W was actually compared to the CPI-W for the year ended September 30th, 2014. That’s because in 2015, with energy prices falling, the CPI-W declined and Social Security benefits, which by law can’t be cut, were the same as the previous year.
Meanwhile, changes in the wage base for social security taxes are tied to increases in average wages, which have been going up far faster than the CPI as workers have finally started making income gains. While wages rose in 2015, the wage base didn’t change because the law provides that it cannot change in years when Social Security recipients don’t get a COLA. As a result, 2017’s large increase in social security wage base reflects growth in average earnings over a two year period.
It was also noted that the average senior will probably not see any of the increase in their monthly SS benefit payments due to the fact that many will also see an increase in their Medicare Part B premiums thus offsetting the increase.
The Advi$or often reminds readers that while the social security payroll tax percentage has remained the same since 1990 – 6.2% (12.4% for self employed) -, the social security wage base has increased over 140%, from $51,300. In 1966, the wage base was $6,600. Since its inception in 1937, the social security wage base has increased over 3,900% while the tax rate has increased over 600%.
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