The Social Security Administration and the Internal Revenue Service have announced the cost-of-living adjustments that apply to the Social Security tax and retirement plan contribution limits for 2017. The most notable increase affects Social Security taxes.
Wages and self-employment compensation are subject to a 6.2 percent Social Security tax. The tax is payable by both the employee and the employer, combining for a total tax rate of 12.4 percent. The self-employed pay both portions of the tax.
The tax applies only to wages and self-employment compensation up to an annually adjusted wage base. For 2017, the new Social Security wage base is $127,200 — a substantial increase from the $118,500 level applicable in 2016.
As a result of this increase, an employee making an amount equal to or greater than the Social Security wage base in 2017 could see his or her share of Social Security taxes increase to $7,886.40 — or $539.40 higher than the maximum payable in 2016.
Following are some of the key retirement plan limits.
Though contribution limits have not changed, phaseout levels have increased by small amounts.
The limits for contributions and catch-up contributions to both traditional and Roth IRAs remain unchanged at $5,500 and $1,000, respectively.
Individuals who contribute to traditional IRAs and have access to a workplace retirement plan (whether their own or through their spouse’s plan) will see minor changes in the income-level phaseouts that apply for purposes of making deductible contributions.
Similarly, the income phaseout levels for Roth IRA contributions have increased slightly.
If you have any questions about how these new limits impact you, please contact Doeren Mayhew’s tax advisors.
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