As predicted, Social Security benefits will not have any meaningful increase for 2017. Social Security Administration announced last week that benefit payouts will increase by 0.3% for 2017, raising the average benefit by about $5 a month.
Those still working while receiving Social Security benefits can earn a bit more this year, with income limits increasing by $1,200 for those under their FRA and by $3,000 for those reaching their FRA in 2017.
The biggest increase was not to benefits or income limits, but to the maximum earnings subject to Social Security taxation. The maximum taxable earnings changed from $118,500 to $127,200, amounting to a 7.34% increase. This is the largest one-year increase in the Social Security wage base in history. Why was the increase so large in 2017 when COLA was only 0.3%? It’s because there was no COLA in 2016, and when there is no COLA, Federal law prevents any increase in the taxable earnings. The 7.3% wage base increase for 2017 reflects two years of wage growth. Learn about the method for determining the wage base and see the calculation for 2017.
With the 6.2% OASDI tax rate for employees, the maximum taxable earnings increase of $8,700 equates to $539.40 of additional tax for workers earning up to or over the limit. The Social Security Administration estimates 12 million workers will pay more Social Security taxes in 2017 due to the increase in the maximum amount of earnings subject to Social Security tax.
According to wage statics from 2015, over 8.7 million wage earners made over $125,000. If we apply the same 7.3% wage base increase for the two-year period, this group of 8.7 million people would be subject to $539.40 of additional Social Security tax. That would amount over $4.6 billion in additional Social Security taxes, and let’s not forget employers would pay a matching tax, making the additional Social Security taxes paid by employees and employers over $9 billion.
Even though this is historically the largest single year increase in the wage base, we might see increases beyond the current wage index method in the future with legislation to raise the payroll cap.
Last but not least, we have a handy cheat sheet including the important Social Security facts and figures for 2017 to share. The changes over 2016 amounts are included in green.