The Social Security Administration’s Office has projected, under all three of its methods of forecasting, the Social Security wage base will increase from $127,200 for 2017 to $130,500 for 2018.
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). There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.
The FICA tax rate for employers is 7.65%—6.2% for OASDI on the first $127,200 of an employee’s wages for 2017, plus 1.45% Medicare tax on the employee’s total wages (no ceiling).
For 2017, an employee will pay:
- 6.20% Social Security tax on the first $127,200 of wages (maximum tax is $7,886.40 [6.20% of $127,200]), plus
- 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
- 2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return). (Code Sec. 3101(b)(2))
For 2017, the self-employment tax imposed on self-employed people is:
- 12.40% OASDI on the first $127,200 of self-employment income, for a maximum tax of $15,772.80 (12.40% of $127,200); plus
- 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a separate return), (Code Sec. 1401(a), Code Sec. 1401(b)); plus
- 3.8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return). (Code Sec. 1401(b)(2))
Self-employed workers deduct half of their self-employment tax above-the-line in arriving at adjusted gross income.
Projections for 2018 and Onward
The 2018 projections were included as part of the annual report to Congress by the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Fund programs. The SSA intermediate forecasts through 2026 are as follows:
- 2018 — $130,500
- 2019 — $135,600
- 2020 — $142,200
- 2021 — $148,500
- 2022 — $155,100
- 2023 — $161,700
- 2024 — $168,000
- 2025 — $174,300
- 2026 — $180,900
Contact your Somerset Tax Team at 317-472-2202 or to discuss tax planning.