Social Security Cost of Living Adjustment Announced
The annual cost-of-living adjustment (COLA) usually means an increase in the benefit amount people receive each month. By law, the monthly Social Security and Supplemental Security Income (SSI) federal benefit rate increases when there is a rise in the cost of living.
The government measures changes in the cost of living through the Department of Labor’s Consumer Price Index (CPI-W). The CPI-W rose this year. When inflation increases, your cost of living also goes up. Prices for goods and services, on average, are a little more expensive. Since the CPI-W did rise, the law increases benefits to help offset inflation.
As a result, monthly Social Security and SSI benefits for over 65 million Americans will increase 0.3 percent in 2017.
Social Security Wage Base Increases to $127,200 for 2017
Other changes that would normally take effect based on changes in the national average wage index will begin in January 2017. For example, the maximum amount of earnings subject to the Social Security payroll tax will increase to $127,200.
The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers-one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).
For 2017, the FICA tax rate for employers is 7.65%-6.2% for OASDI and 1.45% for HI.
For 2017, an employee will pay:
- (a) 2% Social Security tax on the first $127,200 of wages (maximum tax is $7,886.40 [6.2% of $127,200]), plus
- (b) 45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
- (c) 35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).
For 2017, the self-employment tax imposed on self-employed people is:
- 4% OASDI on the first $127,200 of self-employment income, for a maximum tax of $15,772.80 (12.40% of $127,200); plus
- 90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a separate return), plus
- 8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return).
There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.
Note: On a salary of $127,200 (or more), an employee and his employer each will pay $7,886.40 in Social Security tax in 2017.
Note: A self-employed person with at least $127,200 in net self-employment earnings will pay $15,772.80 for the Social Security part of the self-employment tax in 2016.
Note: Self-employed workers deduct half of their self-employment tax above-the-line in arriving at adjusted gross income.
Information about Medicare changes for 2017, when announced, will be available at www.Medicare.gov. For some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.
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