Dec 01, 2016
By Brandon Yuska, Manager at Terry Lockridge & Dunn
For 2017, the wage base for withholding social security tax from wages will increase to $127,200, up from $118,500 in 2016. The "wage base" is the amount of wages on which you and your employer must each pay the 6.2% social security tax. The increased wage base means an additional $8,700 of your income is taxed.
The wage base does not affect the 1.45% Medicare payroll tax. Medicare tax is assessed on all wages and net income from self-employment, including amounts above the base. The 0.9% Additional Medicare Tax is not affected either. That tax applies to your compensation in excess of $250,000 when you are married filing jointly ($200,000 when you are single).
What is the net result of these rules? Your employer will withhold a total of 7.65% of your gross wages for payroll taxes, based on the thresholds discussed here. In addition, federal income tax, state and local income tax, and some non-tax deductions such as retirement plan contributions may also be withheld from your gross wages. These withholdings will be itemized on your pay stub, and you can use them in your tax planning.
Do you need help understanding how to use your pay stub for tax planning purposes? Please contact Brandon Yuska at email@example.com for more information.