The Social Security Administration recently announced that the Social Security wage base will be raised to $132,900 for 2019. This represents a $4,500 increase from the 2018 wage base, which was set at $128,400.
This also marks the largest increase since 2017, when the wage base rose by nearly $9,000, rising from $118,500 to $127,200 after two years of little to no growth, according to the SSA.
What changes for employers
Though not the largest tax hike on record, and one that only affects a minority of the workforce, this higher wage base could have employers paying as much as $279 more per worker in Social Security taxes.
With taxable wages of up to $132,900 now subject to the 6.2 percent Social Security tax that both employees and employers are required to pay, the maximum Social Security tax for both parties in 2019 will be $8,239.80. This will be $279 higher than the $7,960.80 maximum of 2018.
HR leaders should keep in mind that the wage base increase will only impact the tax burden of companies with employees who make more than the previous limit of $128,400, and will affect them to the extent that their employees' taxable incomes exceed that limit.
What remains the same
However, some rates will remain unchanged heading into the new year.
For 2019, the Federal Insurance Contributions Act tax rate will hold steady at 7.65 percent. The FICA tax is a combination of the 6.2 percent Social Security tax rate and the 1.45 percent Medicare tax rate. While Social Security taxes may go up for certain employees and employers due to the wage base increase, the Medicare tax rate continues to apply to all earnings with no limit.
As has been the case since 2013, individuals with earned income of more than $200,000 and married couples filing jointly with earned income of over $250,000 will continue to pay an additional 0.9 percent in Medicare taxes, according to the SSA Fact Sheet. However, employers will only need to withhold this 0.9 percent Medicare tax from employees' paychecks, as workers but not companies are required to pay that extra tax.
Self-employed individuals will continue to be responsible for paying a full 12.4 percent of their taxable income to Social Security, which means those earning an income in excess of the new wage base of $132,900 could be paying $558 more in taxes in 2019.
While still of great import, these automatic adjustments are a relatively minor change, especially compared to the much more sweeping alterations to the tax code that are just around the bend. For information on new payroll technology and how to keep compliant, connect with the experts at Triton today.