The Social Security Administration has put individuals in the U.S. who earn high incomes on notice that they will need to pay more in social security taxes next year.
The U.S. government agency said on Tuesday that the maximum amount of earnings on which payroll tax is paid in support of Social Security will jump by 7.3 percent in 2017. The wage base on which the tax is levied will increased to $127,200 next year, up from the current $118,500.
Employees and their employers each pay 6.2 percent of eligible wages in Social Security tax, even though the latter could easily pass on the payment in form of lower wages. Self-employed individuals pay both the employer's and worker's shares of the tax.
With this increase, a person making an annual income of at least $127,200 will have $7886.40 deducted as Social Security tax in 2017. That would be about $539 higher than the amount paid this year.
This is the biggest jump in the maximum amount of earnings that attract payroll taxes for Social Security since 1993, according to the Wall Street Journal. The SSA said the change will affect roughly 12 million of 173 million U.S. workers who pay the taxes.
However, the over 65 million Americans who get Social Security and Supplement Security Income payments will only see a marginal increase of just 0.3 percent in their benefits next year. The negligible cost-of-living adjustment (COLA) follows lack of adjustment in 2016 and is the result of subdued inflation seen in the economy since the 2007-09 recession.
The Social Security COLA has, since 1975, been associated to the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. The COLA is determined every October using the CPI-W for the previous 12 months. The measure gained 0.3 percent over the level recorded same period in 2014.
The cost-of-living increase expected next year means a Social Security beneficiary who currently receives $1,296 a month will only see a $4 increase in that amount. The increment will likely be consumed by higher premiums to be paid by seniors with Medicare Part B coverage, which takes care of doctor visits and a variety of outpatient care.
The Journal reports the slight bump in the COLA will likely lead to higher premiums for roughly 30 percent of Medicare beneficiaries. These people include those with higher incomes and those who have deferred or are not qualified for Social Security benefits.
The hold-harmless provision of the Social Security Act prevents any increase in premiums by an amount higher than the dollar rise in Social Security payments from being passed along to about 70 percent of beneficiaries. The upper 30 percent will therefore bear much of the burden of expected rise in Medicare costs.
On the bright side, the amount Social Security beneficiaries who are not up to 66 years can earn without getting their benefits deducted will rise next year, according to Forbes. For every $2 earned in excess of $1,410 in a month by those aged 62-65, $1 will be docked in their benefits. The earnings threshold for benefits cut was previously set at $1,310 per month for these recipients.