Social Security Taxes Set to Rise for Some Employees in 2017

The Social Security Administration has announced that the maximum amount of earnings subject to the Social Security tax will climb 7.3% in 2017.

About 6 percent of workers are in for a jolt from higher Social Security payroll taxes in the coming year.

The Social Security Administration announced yesterday the maximum amount of earnings subject to the Social Security tax would climb 7.3 percent to $127,200 in 2017 from the current $118,500 (see fact sheet below for details). This is the largest jump in more than three decades, and will generate $1,078 per worker who reaches the contribution plateau.

This amount will be divided between the worker and employer. People who are self-employed pay both the employer’s and employee’s share of the tax. Remember, most economists believe that wage costs such as the payroll tax are passed over time to the worker in the form of lower wages. So there is a question of how these changes will affect the individual worker.

This increase contrasts sharply with the COLA adjustment of 0.3 percent for benefits. That amount is small by historic standards whereas this year’s change for the tax base was the largest in history. As a percentage increase, the change was the largest one-year jump since 1983.

The Social Security Administration reports that this discrepancy reflects the mechanics of the adjustment process. Benefits are indexed to inflation, CPI-W, and the tax base is indexed to average wages – provided that the system has a COLA adjustment in the year. There wasn’t an adjustment in 2016, so 2017 serves as a catch-up year.

For additional information, also see Ben Leubsdorf’s WSJ piece.

2017 Social Security Fact Sheet

About the Author

Brenton Smith (A.K.A. Joe The Economist) writes nationally on the issue of Social Security reform with work appearing in Forbes, FedSmith.com, MarketWatch, TheHill.com, and regional media like The Denver Post.