Social Security provides retirement and disability benefits to millions of Americans. The money that pays for these benefits comes from your paycheck. When you get paid, you have taxes withheld for Social Security and Medicare taxes in addition to federal and state income taxes.
The amount that is withheld for Social Security taxes is 6.2% of your paycheck.
However, if you are fortunate enough to be a high income earner, your Social Security tax will be capped after you reach a certain income level.
In 2017, the maximum taxable earnings for Social Security taxes increased to $127,200, up from $118,500 in 2016. At 7%, this is the largest increase in many years.
The wage base has increased in four out of the last five years; there were several years after the 2008 recession where the wage base was not increased.
Wage Base History
The maximum wage base applies to Social Security taxes only, it does not apply to Medicare taxes.
Workers pay 6.2% into Social Security and 1.45% into Medicare. Together these two taxes make up FICA. FICA is imposed on employers, employees and self-employed people.
Based on the new wage base, the maximum Social Security taxes that a taxpayer will pay in 2017 is $7,886.40. If you have more than one job and your employer withholds too much Social Security tax, you will receive a refund of the excess tax when you file your tax return.
Even though high earners get a break on Social Security taxes once they reach the maximum wage base, they may have to pay additional Medicare taxes. Starting in 2013, you have to pay an additional 0.9 percent in Medicare taxes if your income is above a certain limit. The additional Medicare tax applies if your income is above $200,000 for single taxpayers and $250,000 for married taxpayers.
Other Social Security news for 2017
Social Security beneficiaries received a 0.30% increase in benefits in 2017. The cost of living adjustment (COLA) has been low the past few years due to low inflation. However, inflation is expected to increase in 2017, so future COLAs should increase as well.
People who are under the full retirement age and are already collecting Social Security can only earn up to $16,920 in 2017 before their benefits are reduced. This is up from $15,720 in 2016. Once you reach your full retirement age, you can have unlimited earnings and your Social Security benefits will not be reduced.
How will the Trump Tax Plan affect Social Security and Medicare taxes?
The proposed Trump tax plan could eliminate the additional Medicare tax. The Social Security wage base could increase substantially under the Trump tax plan, though no numbers have been provided yet.