On October 11, the Social Security Administration (SSA) announced that Social Security and Supplemental Security Income (SSI) benefits will increase 2.8 percent in 2019. The 2.8 percent cost-of-living adjustment (COLA) will begin in January 2019. The COLA adjustment includes the quarter of coverage figure, which rises from $1,320 for 2018 to $1,360 in 2019. The quarter of coverage figure serves to increase the lower and upper limits under optional methods for calculating self-employment tax.
Additionally, SSA announced that the wage base for calculating the Social Security tax (OASDI) will increase from $128,400 from 2018 to $132,900 in 2019. EAs may want to consult the 2019 Social Security changes fact sheet. Social Security Wage Cap and Benefit Amounts Increase for 2019 (SSA Press Release; SSA Fact Sheet), (October 12, 2018) For 2019, the Social Security wage cap will be $132,900, and social security and Supplemental Security Income (SSI) benefits will increase by 2.8 percent. These changes reflect cost-of-living adjustments to account for inflation. Wage Cap for Social Security Tax The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:
  • – a 6.2 percent social security tax, also known as old age, survivors and disability insurance (OASDI); and
  • – a 1.45 percent Medicare tax, also known as hospital insurance (HI).
For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:
  • – a 12.4 percent OASDI tax; and
  • – a 2.9 percent HI tax.
OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap. For 2019, the wage base is $132,900. Thus, OASDI tax applies only to the taxpayer’s first $132,900 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $132,900. There is no wage cap for HI tax. Maximum Social Security Tax for 2019 For workers who earn $132,900 or more in 2019:
  • – an employee will pay a total of $8,239.80 in social security tax ($132,900 x 6.2 percent);
  • – the employer will pay the same amount; and
  • – a self-employed worker will pay a total of $16,479.60 in social security tax ($132,900 x 12.4 percent).
Additional Medicare Tax Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:
  • – $250,000 for married taxpayers who file a joint return;
  • – $125,000 for married taxpayers who file separate returns; and
  • – $200,000 for other taxpayers.
The annual wage cap does not affect the Additional Medicare tax. Benefit Increase for 2019 Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2019 by 2.8 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.