Social Security payroll tax hike to impact high earners next year

Authored by Bukaty Companies on October 25, 2018

More than 60 million individuals receive benefits from Social Security, but where  does the money to fund the program come from? Namely, payroll taxes. The way it works is pretty simple. Employees have 6.2% of their paychecks withheld to cover their Social Security tax obligations. Employers pay the remaining 6.2%, and self-employed workers must pay the full 12.4%. Also, the wage base generally increases each year as determined by the national average wage index, which measures how much a typical worker makes in a year.

Currently, workers are required to pay Social Security taxes on the first $128,400  of earnings. However, beginning January 1, 2019, the maximum earnings subject to the Social Security payroll tax will increase by $4,500 to $132,900. This means around 12 million workers who earn above $128,400 will see more of their earnings  taxed next year, according to the Social Security Administration.

What employers should do

In preparation for the pushback from employees who feel “short changed” from the upcoming tax hit, employers should

     •  adjust their payroll systems to account for the higher taxable wage base,

     • notify impacted employees immediately, and

     • consider educating employees on how to use their pre-tax dollars most  efficiently.

For more information, please contact your Bukaty benefits consultant at 913.345.0440.

Blog Category: Benefits