2017 FICA wage base, withholding allowances, retirement contributions

The Social Security Administration has announced that the 2017 taxable wage base for the Social Security portion of FICA increases to $127,200. That’s a 7.34% hike over the 2016 wage base of $118,500.

In addition, the IRS has released its 2017 Notice 1036, which addresses official 2017 withholding allowances and other withholding issues.

Meanwhile, the IRS has announced that the amount employees can contribute into their 401(k) and 403(b) plan accounts remains unchanged at $18,000 for 2017. Employees age 50 and older may contribute $6,000 in pre-tax catch-up contributions, an amount also the same as in 2016.

2017 Social Security wage base

The 6.2% Social Security tax is payable by both employers and employees; in 2017, the maximum tax is $7,886.40. Except for pretax medical and tax-free fringe benefits, all wages are subject to the 1.45% Medicare portion of FICA, or the 2.35% Medicare portion of FICA for employees earning more than $200,000, since there’s no wage base. (SSA Fact Sheet, 10-18-16)

Exempt amounts for retirees. Retirees who want to return to work are a reliable resource, since they already know the ropes. However, they may lose some of their Social Security benefits. How much they’ll lose depends on an earnings test. Tip: Retirees usually think they’ll lose more benefits than they actually will, so informing them of the 2017 figures can ease their minds.

Retirees who return to work during the year they reach full retirement age—between 65 and 67, depending on when they were born—are subject to a modified earnings test that applies only to earnings for the months before that birthday. Wages earned after that birthday don’t reduce Social Security benefits. For 2017, the exempt amount increases to $44,880 a year; $3,740 a month. For them, $1 in benefits is lost for every $3 they earn.

A separate earnings test applies to early retirees. Employees who retire before they reach full retirement age and who then return to work, can continue to earn up to $16,920 a year, or $1,410 a month, without losing benefits. For these retirees, $1 in benefits is lost for every $2 they earn.

Withholding amounts—2017 Notice 1036

The IRS has released the 2017 Notice 1036, which contains the official 2017 withholding allowance amounts, the amount to add to nonresident alien employees’ wages for calculating their income tax withholding and the percentage method withholding tables.

Good news: As expected, the 2017 withholding allowance amounts remain unchanged from this year.

2017 withholding allowance amounts: The value of one withholding allowance per pay period is:

  • Weekly: $77.90
  • Biweekly: $155.80
  • Semimonthly: $168.80
  • Monthly: $337.50
  • Quarterly: $1,012.50
  • Semiannual: $2,025.00
  • Annual: $4,050.00
  • Daily or miscellaneous: $15.60.

Nonresident employees’ withholding: Except for nonresident students or business apprentices from India, add these amounts per pay period to your nonresident employees’ wages:

  • Weekly: $44.20
  • Biweekly: $88.50
  • Semimonthly: $95.80
  • Monthly: $191.70
  • Quarterly: $575.00
  • Semiannual: $1,150.00
  • Annual: $2,300.00
  • Daily or miscellaneous: $8. 80

Note: These values have changed for 2017.

Nonresident employees can generally claim only one withholding allowance on their W-4s.

2017 percentage method tables: We’ve included the 2017 percentage method withholding tables at the Forms, Tables & Publications portion of Payroll Legal Alert’s website.

2017 401(k) contribution limits, other fringe limits

The amount employees can contribution into their 401(k) or 403(b) plan accounts remains $18,000 for 2017, the IRS announced. Also unchanged from 2016, employees who are at least 50 years old may contribute $6,000 in pretax catch-up contributions.

Other inflation-adjusted amounts for qualified pension plans include the following:

  • The Section 415 limit (i.e., the overall pretax, after tax and employer contribution) increases $1,000, to 100% of compensation or $54,000
  • The annual compensation limit (i.e., the limit above which contributions can no longer be taken into account increases $5,000, to $270,000
  • The dollar limitation concerning the definition of key employee in a top-heavy plan also increases $5,000, to $175,000
  • The dollar limitation used in the definition of a highly compensated employee remains $120,000. (Notice 2016-62, IRB 2016-46)

Along with the release of the 2017 pension limitations, the IRS also released 2017 inflation-adjusted figures for the following:

  • The monthly tax-free reimbursement for qualified employer-provided parking and mass transit benefits remains $255
  • The most employees can defer into their health flexible spending account increases $50, to $2,600
  • The salary limit for the 50% small employer health tax credit increases to $26,200, from $25,900. (Rev. Proc. 2016-55)