Federal withholding taxes will likely be decreased for the majority of Americans in 2018, while for some, Social Security tax may increase.
Employees may face an increase in their payroll taxes for the following year due to Social Security tax. If you are self-employed or an independent contractor, you are on the hook for this increase entirely. If youâ€™re not self-employed, you will split this increase with your employer. Read more on self-employment taxes.
Not everyone will see an expansion in Social Security tax. The question remains, will you?
In short, the Social Security wage base is increasing. The wage base is the maximum amount of earned income upon which employees must pay Social Security taxes. This means there will be a more significant Social Security payroll tax for people making $128,400 or less. That is an increase of $1,200 from the 2017 wage base.
The effective Social Security tax rate will stay the same with a 12.4% split between employer and employee, but the wage base increases. As a result, more individuals, those that fit into the $127,200 to $128,400, are now paying into Social Security.
Below is a breakdown and difference of the 2017 and 2018 minimum wage base:
Maximum Social Security tax for 2018: $7,960.80
Maximum Social Security tax for 2017: $7,886.40
Difference = $74.40
Not everyone will have an increase this year in payroll taxes. If you do, you are most likely making a hefty annual salary. So, that's not all bad.
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