The Social Security Administration announced that the 2020 maximum earnings subject to the Social Security payroll tax will increase to $137,700. Currently, workers are required to pay Social Security taxes on the first $132,900 of earnings. The increase takes effect January 1, 2020.
For employees compensated at the new, higher threshold, the change equates to nearly $300 more in annual taxes. Employees have 6.2% of their paychecks withheld to cover Social Security payroll tax obligations. Employers pay the remaining 6.2%, and self-employed workers must pay the full 12.4%. The wage base increases each year, determined by the national average wage index, which measures average yearly compensation.
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, 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.