Were you at the max last year in terms of income subject to Social Security tax — $113,700? If so, don't gloat over the 3 percent raise you just got. It ain't tax-free money. The government just raised the max to $117,000.
This was among the changes announced by the Social Security Adminstration Oct. 30. Starting on Jan. 1, the SSA will raise the maximum amount subject to its employee payroll tax to $117,000. The adjustment is expected to affect as many as 10 million U.S. employees.
The Society for Human Resource Management offers guidance to absorb these changes. SHRM says that, what the changes mean for HR managers is, as of Jan. 1, they'll need to start collecting at the higher rate to meet the requirements of the Federal Insurance Contributions Act, or FICA.
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That includes withholding for Medicare as well as Social Security. In addition to calibrating systems to the higher rate, HR managers are required to notify affected employees of the change. Hint: Don't do this in person, because often the message does get shot.
The percentage to be withheld for SSA and forked over to the feds remains unchanged: 12.4 percent. It's just the max that's gone up. The increase isn't tied to inflation, just more of a whim on the part of someone, somewhere, in Washington. The Medicare rate also remains unchanged (2.9 percent). Thus the total FICA bite comes to 15.3 percent for most wage earners.
While at corporations this chunk is split between employer and employee, the self-employed, with no one to share with, are responsible for the full 15.3 percent.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
