The Social Security Administration (SSA) has announced that the maximum amount of earnings subject to OASDI Social Security tax will rise to $127,200, in 2017 after holding at $118,500 for 2016 and 2015. The SSA cost-of-living adjustments (COLAs) are based on the rise in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of 2015 through the third quarter of 2016.
Likewise, monthly Social Security and SSI benefits will automatically increase in 2017 for over 65 million Americans. Proposals have surfaced from time to time to increase the maximum wage base substantially in the future.
“Nanny” tax. For 2017, the domestic employee coverage threshold, as adjusted for a slightly different inflation factor and subject to rounding, will be $2,000, which is the same as for 2016 after rising from $1,900 in 2015. Earnings of any domestic employee are not subject to Social Security taxes if they do not exceed that threshold for the year.
Maximum Self-Employment Income Subject to Self-Employment Tax
The self-employment tax is composed of two parts; one for old-age, survivors and disability insurance (OASDI) and one for hospital insurance (HI). The maximum self-employment income subject to tax for OASDI for any year is equal to the social security contribution and benefit base for OASDI for that year, minus any wages paid to the individual during that tax year that are subject to FICA or railroad retirement tax.
Key Rates and Figures
For 2017, the contribution and benefit base for remuneration and self-employment income is $127,200.
For 2016, the contribution and benefit base for remuneration and self-employment income is $118,500.
For 2015, the contribution and benefit base for remuneration and self-employment income is $118,500. For 2014, the contribution and benefit base for remuneration and self-employment income is 117,000. For 2013, the contribution and benefit base for remuneration and self-employment income is $113,700. HI tax is imposed on the entire amount of an individual’s self-employment income.
Wages include payments to employees of state and local governments, foreign subsidiaries of domestic corporations and nonprofit organizations who are covered by FICA under a voluntary agreement; and wages paid to employees of state and local governments who are not members of a retirement system of that state or local government.
Example 1
Hamlette contracts with a textbook publisher to write several books over a period of five years. He also becomes a philosophy professor at State University. He earns $50,000 after allowable deductions: $38,000 in wages as a professor and $12,000 from writing books. For purposes of determining his self-employment tax, the $38,000 in wages that is subject to FICA is subtracted from $50,000, leaving $12,000 (before the 7.65-percent self-employment tax deduction) subject to self-employment tax.
Example 2
Sampson is a law professor at State University. In 2016, she earns $120,000 in wages from the university and $25,000 of net private consulting income. Because her wages amount to more than the $118,500 OASDI contribution base for 2016, none of her net private consulting income is subject to the OASDI portion of self-employment tax. However, all of her consulting income is subject to the HI portion of self-employment tax, because there is no limit on the amount of income to which the HI portion applies.
Example 3
In 2016, Munsey has net earnings from self-employment of $15,000 and wages of $110,000. His earnings from self-employment plus wages exceed the amount of income subject to the OASDI portion of self-employment tax in 2016 ($118,500). Therefore, Munsey’s self-employment income for 2016 that is subject to the OASDI portion of self-employment tax equals $8,500 ($118,500 − 110,000). The full $15,000 is, however, subject to the HI portion of self-employment tax.