April is Stress Awareness Month. Let SHRM make your work life easier: Join Now
Shawn Premer shows how doing the right thing for employees leads to positive business results.
Is your employee handbook keeping up with the changing world of work? With SHRM's Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Build competencies, establish credibility and advance your career—while earning PDCs—at SHRM Seminars in 12 cities across the U.S. this spring.
#SHRM18 will expand your perspective – on your organization, on your career, and on the way you approach HR. Join us in Chicago June 17-20, 2018
The new amount for earnings subject to the Social Security tax is $128,400— not $128,700, as the SSA announced in October
Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.
Last updated on Jan 12, 2018.
An earlier version of this article was posted on Oct. 17, 2017, under the title "2018 Payroll Tax Cap Will Nudge Slightly Higher."
On Nov. 27, the Social Security Administration (SSA) announced that it had
revised the maximum amount of earnings subject to the Social Security tax (the "taxable maximum") for 2018, replacing the amount that the SSA had originally announced in October.
The new taxable-maximum amount for 2018, based on updated wage data, is
$128,400, not $128,700, as the SSA had previously said.
The revised $128,400 taxable maximum is an increased of $1,200 over the $127,200 earnings maximum for 2017, rather than the $1,500 increase the SSA had
announced on Oct. 13 (the SSA has also revised the online version of its October announcement).
"The reason given for this unusual change was that the wage base, which reflects national average wages, had to be recalculated when a good deal of salary data that had not been included in the original calculations was received after applicable deadlines," said Jeffrey S. Ashendorf, a benefits and compensation attorney with law firm FordHarrison in New York City.
He said of the $300 downward adjustment, "although small, the resulting revision is not inconsequential."
Of the estimated 175 million workers who will pay Social Security taxes in 2018, about 12 million will pay more because of the increase in the taxable-maximum amount, beginning on Jan. 1, 2018.
Payroll Taxes: Cap on Maximum Earnings
Maximum Taxable Earnings for:
Source: Social Security Administration.
Those whose compensation exceeds the previous $127,200 maximum will see a decrease in net take-home pay if they don't receive an annual salary raise that makes up for the payroll tax's bigger bite.
By the start of the new year, U.S. employers should:
Social Security is financed by a 12.4 percent tax on wages up to the taxable-earnings cap, with half (6.2 percent) paid by workers and the other half paid by employers. As a result, employers also will pay more in 2018, as their 6.2 percent share is applied to additional earnings.
Those higher costs could depress wage increases, economists note. Job positions and an employee's value are worth what an organization determines that they're worth (see link below, for instance), and an employer's share of payroll taxes are part of those costs. Consequently, compensation budgets should take into account the increased taxes that employers will pay for affected positions.
[SHRM members-only guide: How to Establish Salary Ranges]
At the same time, expect some pushback from employees who may want to be "made whole" for their share of the extended tax hit. In making these determinations, stay mindful that there is only so much budgeted for employee pay all round, compensation advisors note.
Social Security and Medicare payroll taxes are collected together as the Federal Insurance Contributions Act (FICA) tax. FICA tax rates are statutorily set and therefore require new tax legislation to be changed.
For employers and employees, the Medicare payroll tax rate is a matching 1.45 percent on all earnings, bringing the total Social Security and Medicare payroll withholding rate for employers and employees to 7.65 percent each—with only the Social Security portion (6.2 percent) limited to the $128,700 taxable-maximum amount.
Those who are self-employed must pay both the employer and employee portions of FICA taxes.
The tax rates shown above do not include
an additional 0.9 percent in Medicare taxes paid by highly compensated employees.
Under a provision of the Affordable Care Act, the employee-paid portion of the Medicare FICA tax is subject to a 0.9 percent Additional Medicare Tax on amounts over statutory thresholds that are not inflation-adjusted and thus apply to more employees each year.
The threshold annual compensation amounts that trigger the Additional Medicare Tax are:
Additional Medicare Tax withholding applies to wages, compensation and self-employment income in excess of these thresholds in a calendar year.
This added tax raises the wage earner's Medicare portion of FICA on compensation above the threshold amounts to 2.35 percent; the employer-paid portion of the Medicare tax on these amounts remains at 1.45 percent.
(To learn more, see the IRS webpage
Questions and Answers for the Additional Medicare Tax.)
The Additional Medicare Tax should not be confused with the Alternative Minimum Tax on high incomes, which does not involve mandatory payroll withholding.
Monthly Social Security and Supplemental Security Income benefits for more than 61 million Americans will increase by 2 percent in 2018, the SSA also announced. The Social Security Act ties the annual cost-of-living adjustment (COLA) to increases in the Consumer Price Index, as determined by the Department of Labor's Bureau of Labor Statistics.
The 2018 Social Security cost-of-living percentage increase "will first apply to December 2017 benefits payable in January 2018," explained Majorie Martin and Andrew Eisner, consultants with Conduent, an HR advisory firm, in an alert about the SSA's announcement.
According to a new SSA fact sheet, the maximum Social Security benefit for workers retiring at full retirement age in 2018 will be $2,778 per month, up from $2,687 per month in 2017.
The SSA estimates that the average monthly Social Security benefits payable in January 2018 for all retired workers will be $1,404, up $27 from the 2017 average payment of $1,377.
Premiums for Medicare Part B, which primarily covers doctors' visits and other outpatient care, can also change annually. For 2017 the base premium was $134, with higher earners paying more.
For 2018, the standard monthly premium for Medicare Part B enrollees will stay at $134. "Some beneficiaries who were held harmless against Part B premium increases in prior years will have a Part B premium increase in 2018, but the premium increase will be offset by the increase in their Social Security benefits next year," the U.S. Centers for Medicare & Medicaid Services (CMS) said.
The CMS announced Part B premium increases for 2018 on Nov. 17, and additional information is available at
The Medicare Part A annual inpatient hospital deductible that beneficiaries pay when admitted to the hospital will be $1,340 per benefit period in 2018, an increase of $24 from $1,316 in 2017.
For those claiming Social Security before reaching their full retirement age (age 66 for people born in 1943 through 1954),
benefits are limited if they continue to work and receive earned income. These factors should be pointed out to employees who also are Social Security income recipients.
Until an individual reaches full retirement age, the SSA deducts $1 dollar in Social Security benefits for every $2 earned over the retirement earnings exemption limit. A separate earnings test applies in the year an individual reaches full retirement age. During that year, in the months prior to attaining full retirement age, the SSA deducts $1 dollar in benefits for every $3 earned over the limit until the month the worker turns age 66. The SSA announced that:
"There is no earnings test for Social Security recipients in months following attainment of normal retirement age," explained Martin and Eisner.
Income tax bracket adjustments for tax year 2018 were issued on Oct. 19 by the IRS in
Revenue Procedure 2017-58. However,
the 2017 tax act that President Trump signed into law on Dec. 22 significantly altered tax brackets and income ranges starting Jan. 1, 2018.
The legislation, referred to as Tax Cuts and Jobs Act, changes the tax rates and the brackets of taxable income to which the rates apply (see below). It also increased the standard deduction for individuals who do not itemize deductions, suspended the deduction for personal exemptions and increased the child/family tax credit.
Update: IRS Issues New Withholding Tables for 2018
The IRS released new withholding tables for 2018 on Jan. 11. Employers were told to adjust employee withholding rates by Feb. 15, 2018. Workers do not need to resubmit Form W-4.
HR compensation and payroll managers should work with their internal payroll departments and payroll vendors to ensure that their systems are appropriately adjusted in light of the IRS guidance.
SHRM Online article
IRS Issues New Withholding Tables for 2018.
The IRS encourages wage earners to consider a tax withholding checkup. "By adjusting the
Employee's Withholding Allowance Certificate, taxpayers can ensure that the right amount is taken out of their pay throughout the year," the IRS advised. "Having the correct amount withheld from paychecks helps to ensure that taxpayers don't pay too much tax during the year—and that they have money upfront rather than waiting for a bigger refund after filing their tax return."
The level of income that is subject to a higher tax bracket also can influence a number of decisions by employees, including how much salary to defer into a traditional 401(k) plan, which reduces taxable income for a given year by the amount contributed, or whether to participate in a nonqualified deferred income plan, if that option is available through the employer.
The chart below shows the bracket changes that will take effect in 2018 as described in
Title I of the 2017 tax act. For comparison, it's followed by a chart showing 2017 rates and the changes that were slated to take effect in 2018 absent passage of the tax bill.
Single Filing Individual Return (other than surviving spouses and heads of households)
Married Filing Jointly (and surviving spouses)
Married Filing Separate Returns
Heads of Households
The 2017 tax act also makes the following income tax adjustments for 2018:
The chart below shows the bracket changes that were slated to tax effect without passage of the Tax Cuts and Jobs Act:
Married Filing Jointly (and surviving spouse)
Revenue Procedure 2017-58, now superseded by the Tax Cuts and Jobs Act, also stated that among other income tax adjustments for 2018:
Related SHRM Articles:
IRS Releases New Withholding Tables for 2018, SHRM Online Compensation, January 2018
Tax Bill Alters Executive Pay, Affects Bonuses and Withholding,
SHRM Online Compensation, December 2017
For 2018, 401(k) Contribution Limit for Employees Rises to $18,500,
SHRM Online Benefits, October 2017
2018 FSA Employee Cap Rises to $2,650,
SHRM Online Benefit, October 2017
IRS Sets 2018 HSA Contribution Limits,
SHRM Online Benefits, May 2016
At Tax Time, Remind Workers About the Saver's Credit,
SHRM Online Benefits, February 2017
Was this article useful? SHRM offers thousands of tools, templates and other exclusive member benefits, including compliance updates, sample policies, HR expert advice, education discounts, a growing online member community and much more.
Join/Renew Now and let SHRM help you work smarter.
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Please sign in as a SHRM member before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
SHRM’s HR Vendor Directory contains over 3,200 companies