A number of social security changes are expected for 2017. Specifically, the wage base which is subjected to taxation is expected to grow from $118,500 to $127,200. Upon reaching this threshold, employees will no longer be subject to social security tax withholding. It has also been recently announced that over sixty five million people will receive COLA, or a cost of living adjustment of 0.3 percent for 2017.
This is in stark contrast to 2016 where recipients received no increase in regards to inflation. These changes will primarily affect couples who are retired as well as widows/widowers. Most seniors have Medicare premiums deducted from their payments each month, and these premiums will consume much of the increases they will receive from COLA. The wage base for taxes related to Social Security will rise, to about 7.3 percent. That comes to a total of about $7,886.40 that will be withheld from workers that are well compensated. This increase in the wage base will affect about 12 million workers who are responsible for paying taxes for Social Security.
Facts Regarding Social Security
The SSA, or Social Security Administration, is the governmental department responsible for providing social security. The base for taxable wages is the maximum amount of compensation that employees may receive which is subject to taxation via Social Security and state unemployment.
FICA stands for Federal Insurance Contributions Act and is responsible for designating the taxes which will be combined for both Social Security and Medicare. Medicare is a type of insurance that is offered through the federal government for individuals who are disabled or 65 years of age or older. It receives funding primarily through FICA via the HI or hospital insurance.
Surtax For Medicare
Workers who have earned wages in excess of $200,000 will also be subject to Medicare surtax, which will be 0.9 percent. This will raise their complete FICA amount to approximately 8.55 percent. Only workers will be subject to this surtax and it won’t be applied to the portion of employers.
TAX Rates For FICA
The tax rate for FICA will remain the same for employees in 2017, which is 7.65 percent. This rate is a combination of both Medicare (at 1.45 percent) and Social Security (at 6.2 percent). The Social Security is applied to earnings up to $127,200, while the Medicare rate is for all earnings. For their part, employers must continue to match this portion by paying 1.45 percent for Medicare and 6.2 percent for Social Security.
How To Prepare For These Changes
Clients that are already using payroll software which is web based can prepare for these upcoming changes in social security by adjusting their payroll programs to compensate for the increased tax limit which will be imposed through the portion reserved for Social Security within FICA. This is true regardless of what specific brand of payroll software you use. Additionally, business owners should speak with their employees and notify them of the FICA increase in advance so that confusion regarding the matter is minimized. If you are using TRAXPayroll and need help in making any of the said changes, feel free to consult our customer service team for more information.