The tax man has his eyes on you. He always does. And if your wages exceed $118,500 then the tax man will collect.
Wages subject to Social Security jump 7.3% in 2017, to $127,200. That’s the largest single-year jump since 1983.
About 12 million will be affected. Are you one of them?
The Wall Street Journal reports Social Security Taxes to Rise for Higher-Income Americans.
Nearly 66 million people, or roughly 1 in 5 Americans, receive Social Security and Supplemental Security Income payments from the U.S. government. Based on subdued inflation over the past two years, their benefits will see a 0.3% cost-of-living increase for 2017 following no adjustment this year, the Social Security Administration said Tuesday.
The agency also said the maximum amount of earnings subject to the Social Security tax would climb 7.3% to $127,200 in 2017 from $118,500 in 2015 and 2016, affecting an estimated 12 million workers. The worker’s share of Social Security payroll tax is 6.2% of eligible wages; someone making at least $127,200 in 2017 would pay an additional $539 over the course of next year.
The jump in the taxable-earnings cap, the largest one-year increase since 1983, reflects rising wages and the fact that federal law kept the taxable maximum unchanged this year due to the absence of a cost-of-living increase.
The cost-of-living figure also plays a major part in determining premiums for Medicare Part B, which covers doctor visits and other types of outpatient care for elderly and disabled Americans.
While the final figure on the premium increase won’t be announced immediately—the Centers for Medicare and Medicaid Services last year released it in November—the 0.3% bump is likely to result in higher premiums for some 30% of Medicare beneficiaries. They include those who already pay higher premiums because of their higher incomes, those who receive Medicare but have deferred or aren’t eligible for Social Security benefits and those who are new to Medicare in 2017.
The reason is a provision of the Social Security Act called the hold-harmless provision. It prevents Medicare from passing along any premium increase greater than the dollar increase in Social Security payments to the estimated 70% of beneficiaries who will qualify for hold-harmless treatment in 2017. When the cost-of-living adjustment is low, it means Medicare must spread much of the projected increase in its costs across the remaining 30%.
Norman Ferson, 71, a retired software-company manager from Austin, Texas, said he expects his meager bump in Social Security benefits next year will be consumed by higher Medicare premiums.
“There’ll be nothing left for anything else,” he said.
If you make $127,200 or more in wages, your tax hit will be $539, unless you are self-employed, then it will be $1078.
This will make the tax man very happy.
Governments always want wages to rise and property values to rise. That way, they can waste more and more of your tax dollars.
Mike “Mish” Shedlock