Last October of 2016, the Social Security Administration or SSA announced the possible increase of the maximum amount of earnings that are subject to the Social Security payroll tax. The expected increase is about 7.3% making the $118,500 maximum amount for 2016 to $127,200 for 2017. Because of this increase, about 12 million workers will pay more Social Security taxes in 2017.
The government has estimated an actual wage growth for the past years that prompt them to do the adjustment. Because of the insufficient cost-of-living increase in Social Security benefits, the federal law maintained the same taxable maximum for 2016. A 12.4% of tax on wages up to the taxable-earnings cap finances the Social Security. This tax on wage is paid equally by both the employees and the workers. Before the taxable wage remained unchanged for 2016, it usually rises every year.
By the first day of January every year, employers in the U.S. have to do adjustments to their payroll systems to comply with the higher taxable wage base subject to Social Security payroll tax. They should also inform affected employees about withholding more of their paychecks. For employees with more than $118,500 wage, they will now have a deduction in their net take-home pay especially if they don’t have an annual increase to compensate the payroll tax.
On the other hand, employers are also expected to pay more since their 6.2% share of the tax wage is allocated for additional earnings. Economists see it as a hindrance for a wage increase. The payroll taxes shared by employers would be part of the costs and budgets for compensation will consider this additional tax that employers will pay intended for affected positions.
Here’s to helping you better understand what’s in your pocket.
Until next time.
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