2018 Social Security Taxable Wage Base Inches Up, Benefit COLAs Up More

Author: Rena Pirsos, XpertHR Legal Editor

October 17, 2017

The Social Security Administration has issued inflation-adjusted figures for 2018, including the Social Security taxable wage base, the earnings tests for retirees who return to work, and the Social Security benefits quarter-of-coverage requirement and cost of living adjustment (COLA). Employers should update their payroll systems with these new figures for accurate 2018 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 2018, the taxable wage base for the Social Security portion of FICA tax, which is composed of Social Security and Medicare taxes, is $128,700. This is a small increase of $1,500, or a little more than 1%, from the 2017 taxable wage base of $127,200.

The Social Security tax rate is 6.2%. Therefore, the maximum amount of Social Security taxes that both employers and employees will pay in 2018 is $7,979.40 ($128,700 × 6.2%). That is an increase of $93 from 2017, in which the maximum amount of tax is $7,886.40.

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 2018 (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 2018 if they earn $2,100 (an increase of $100 from 2017). Election workers are subject to FICA taxes in 2018 if they earn $1,800 (unchanged from the 2017 amount).

A quarter of coverage is the basic unit for determining whether a worker qualifies for Social Security benefits upon retirement. For 2018, workers must earn $1,320 a calendar quarter to qualify for benefits (up from $1,300 in 2017).

Retiree Earnings Tests

Employees who retire, begin to draw Social Security benefits and then return to work may lose some of those benefits depending on how much they earn and their age at retirement:

  • Employees who retire at full retirement age can earn up to $45,360 in 2018, or $3,780 a month, without losing any benefits (up from $44,880 and $3,740, respectively, in 2017). 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 $17,040 in 2018, or $1,420 a month, without losing any benefits (up from $16,920 and $1,410, respectively, for 2017). One dollar in benefits is withheld for every $2 in earnings above the limit.

Benefit COLA

Social Security beneficiaries will see a 2% COLA increase in their 2018 benefits, after receiving a 0.3% increase in 2017. The maximum monthly Social Security benefit for an employee who retires in 2018 at full retirement age is $2,788 (up from $2,687 in 2017).