On October 15, the Social Security Administration (SSA) announced that the 2016 social security wage base will be $118,500; the same as in 2015. The Fact Sheet can be found on the SSA website.
As in prior years, there is no limit to the wages subject to the Medicare tax. All covered wages are subject to the 1.45% tax. Wages paid in excess of $200,000 in 2016 will be subject to an extra 0.9% Medicare tax that is only withheld from employees’ wages. Employers do not pay the extra tax.
The maximum social security tax employees and employers will each pay in 2016 is $7,347. This is also unchanged from 2015.
Social security benefits are not getting a cost of living increase. The SSA says this news isn’t necessarily bad. When inflation stays low, the rationale is that an individual’s cost of living also stays the same. The government measures changes in the cost of living through the Department of Labor’s Consumer Price Index (CPI). Since the CPI has not risen over the past year, there is no increase in the benefit amount people receive each month.
The social security wage base for self-employed individuals in 2016 will also be $118,500. There is no limit on self-employed income subject to the Medicare tax. The self-employment tax rate will be 15.3% (combined social security tax rate of 12.4% and Medicare tax rate of 2.9%). The maximum tax is $14,694.
The FICA coverage threshold increases by $100 in 2016 for domestic and election workers. For domestic workers, it is $2,000 and for election workers, it is $1,700.
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