The Social Security Administration (SSA) announced that the maximum amount of wages in 2017 subject to the 6.2% Social Security tax (old age, survivor, and disability insurance) will rise from $118,500 to $127,200, an increase of more than 7%. By comparison, the 2016 wage base was unchanged from 2015.
By comparison the cost of living adjustment for Social Security recipients only rose 0.3.%. There was no COLA for 2016.
Why the difference? Because by law the wage base cannot increase in a year where there is no COLA. Thus the 2017 wage base increase is really for both 2016 and 2017. The wage base increase is predicated on the average growth of income as reported by the Bureau of Labor Statistics. The COLA is based on the increases in the consumer price index.
The maximum amount of Social Security tax a taxpayer could pay will increase from $7,347 in 2016 to $7,886.40 in 2017, an increase of $539.40.
Among the other increases is the amount a worker under full retirement age can earn before he or she has Social Security benefits reduced. The limit increases from $15,720 a year to $16,920 for 2017, after which $1 in benefits is withheld for every $2 earned above the limit. Last year, this limit also did not increase because of low inflation.
There is no limit on the amount of wages subject to the other portion of the FICA tax, the 1.45% Medicare tax.
Adapted from articles originating at Accounting Today and Forbes.