2017 Social Security Taxable Wage Base Substantially Increased, Benefit COLA and Related Figures Also Up
Author: Rena Pirsos, XpertHR Legal Editor
October 19, 2016
The Social Security Administration has issued inflation-adjusted figures for 2017, including the Social Security taxable wage base, the earnings tests for retirees who return to work, the quarter of coverage requirement for Social Security benefits, and the cost of living adjustment for Social Security benefits. Employers should update their payroll systems with these new figures for accurate 2017 withholding.
Taxable Wage Base
Employees and employers pay Social Security taxes on employees' wages up to an annual ceiling, or taxable wage base. Wages earned above that figure are not subject to withholding for Social Security tax. For 2017, the taxable wage base for the Social Security portion of FICA, which is composed of Social Security and Medicare taxes, is $127,200. This is a substantial increase of $8,700 from the 2016 taxable wage base of $118,500.
The Social Security tax rate is 6.2%. Therefore, the maximum amount of Social Security taxes that both employers and employees will pay in 2017 is $7,886.40 ($127,200 × 6.2%). That is an increase of $539.40 from 2016, in which the maximum amount of tax is $7,347.
The Medicare portion of FICA is not subject to a taxable wage base. As in prior years, employees will pay 1.45% on wages paid up to $200,000, and 2.35% on wages paid exceeding $200,000. Employers make matching contributions of 1.45% on all of each employee's wages (employers do not pay the extra 0.9% that the higher wage earners pay). Therefore, the combined FICA tax rate will remain 7.65% for 2017 (6.2% + 1.45%), up to the Social Security taxable wage base.
Domestic workers must pay FICA taxes (the "Nanny tax") on their earnings in 2017 if they earn $2,000 (unchanged from 2016). Election workers are subject to FICA taxes in 2017 if they earn $1,800 (an increase of $100 from the 2016 amount of $1,700).
A quarter of coverage is the basic unit for determining whether a worker qualifies for Social Security benefits upon retirement. For 2017, workers must earn $1,300 a calendar quarter to qualify for benefits (up from $1,260 in 2016).
Retiree Earnings Tests
Employees who retire, begin to draw Social Security benefits, and then return to work may lose some Social Security benefits depending on how much they earn and their age at retirement:
- Employees who retire at full retirement age can earn up to $44,880 in 2017, or $3,740 a month, without losing any benefits (up from $41,880 and $3,490, respectively, in 2016). The earnings test applies to earnings employees receive for months prior to their attainment of full retirement age. One dollar in benefits is withheld for every $3 in earnings above the limit.
- Employees who retire prior to attaining full retirement age can earn up to $16,920 in 2017, or $1,410 a month, without losing any benefits (up from $15,720 and $1,310, respectively, for 2016). One dollar in benefits is withheld for every $2 in earnings above the limit.
Social Security beneficiaries will see a 0.3% cost of living increase in their 2017 benefits. The maximum monthly Social Security benefit for an employee who retires in 2017 at full retirement age is $2,687 (up from $2,639 in 2016).