Updated Social Security Tax Limits and Rates
Posted by: Brookside Admin
Next year will see the biggest increase in recent years in the maximum amount of earnings on which you pay Social Security taxes. After remaining the same for the past two tax seasons, and only rising by $1,500 from 2014, the limit will jump up by nearly $10,000 in 2017.
Here's a look over the relevant facts and figures you'll need to know heading into 2017 about Social Security taxes.
Amount subject to Social Security tax
In 2016, the maximum amount of earnings subject to Social Security taxes was $118,500, which is the same limit used in 2015. In 2017, however, that limit will be raised to $127,200. This significant bump exceeds the trend of recent decades of raising the maximum earnings for Social Security tax about $25,000 every ten years. To illustrate, in 1980, this limit was $25,900. By 1990, it had been raised to $51,300. In 2000, the limit sat at $76,200. By 2010, the $106,800 limit exceeded that trend.
Tax Rate for Social Security and Medicare
The tax rate applied to this maximum amount of earnings is split between Social Security and Medicare. In 2016, the tax rate is 7.65% for employees, and 15.3% for the self-employed. The rate will remain the same for 2017. That 7.65% rate is made up of a 6.2% Social Security tax (OASDI) and a 1.45% Medicare tax (HI). For individuals with a taxable income exceeding $200,000, or married couples filing jointly whose taxable income exceeds $250,000, an additional 0.9% is added to the Medicare tax.
The maximum earnings limit applies only to the Social Security portion of the tax. There is no such limit on the Medicare tax portion. This means that those that exceed $118,500 in income covered by social security in 2016 will only pay the 1.45% Medicare tax on the additional income over that limit. That rate is 2.9% for the self-employed.
The IRS releases these updated limits and tax rates so you can adequately plan throughout next year. Let us help. Contact Brown Kinion and Company CPAs to not only help you file your 2016 tax return, but also to help you plan for your 2017 taxes.