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The Complete Payroll Blog

Social Security wage base jumps to $127,200 for 2017

Posted by Complete Payroll | Jan 10, 2017 7:00:00 AM

Announced by the Social Security Administration (SSA) the 2017 Social Security Wage Base will be $127,200, which is an increase of $8,700 (or 7.3%) from $118,500 in 2016.

What is the wage base?

The Social Secuirty tax is officially known as the Old Age, Survivors and Disability Insurance (OASDI) tax. It shows up on an employee's pay stub like this...

OASDI tax.png

The Social Security Wage Base is the maximum earned gross income on which a wage earner's Social Security tax may be imposed. For example, in 2010, the Social Security Wage Base was $106,800 and the Social Security tax rate was 6.20% - for both employees and employers. So a person who earned $10,000 in 2010 would pay a total of $620 in Social Security tax - and that amount would also be matched by his or her employer. 

A person who earned $110,000 in 2010 would pay a total of $6,621.60 in Social Security tax. Because their earnings were more than the wage base limit of $106,800, they wouldn't pay any Social Security tax on the additional $3,200 in annual earnings. Similarly, a muli-millionaire would also pay $6,621.60 in Social Secuirty tax. The idea is that everyone pays the same amount into the Social Security system, and later everyone takes out the same amount from the Social Security system.

10-Year History of Social Security Wage Base Growth.png

More about the 2017 increase

There is no limit to the wages subject to the Medicare tax; therefore all covered wages are still subject to the 1.45% tax. As in 2016, wages paid in excess of $200,000 in 2017 will be subject to an extra 0.9% Medicare tax that will be withheld only from employees' wages. Employers will not pay the extra tax.

As in prior years, there is no limit to the wages subject to the Medicare tax; therefore all covered wages are still subject to the 1.45% tax. As in 2016, wages paid in excess of $200,000 in 2017 will be subject to an extra 0.9% Medicare tax that will be withheld only from employees' wages. Employers will not pay the extra tax.

The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2017 up to the social security wage base. The maximum social security tax employees and employers will each pay in 2017 is $7,886.40, an increase of $539.40 from $7,347 in 2016.

The social security wage base for self-employed individuals in 2017 will also be $127,200. There is no limit on covered self-employment income that will be subject to the Medicare tax. The self-employment tax rate will be 15.3% (combined social security tax rate of 12.4% and Medicare tax rate of 2.9%) up to the social security wage base. In 2017, the maximum social security tax for a self-employed individual will be $15,772.80.

The threshold for coverage under social security and Medicare for domestic employees (i.e., the "Nanny tax") will be $2,000 in 2017, unchanged from 2016; the coverage threshold for election workers will be $1,800 in 2017, up from $1,700 in 2016.

Source: American Payroll Association

Click here to read the Social Security Administration's Fact Sheet.

Topics: Taxes, Employees, Insurance

Written by Complete Payroll

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