FICA wage base increases to $132,900 in 2019

Update 11/1: IRS announces 2019 401(k) contribution limits, other fringe benefit limitations

The amount employees can contribution into their 401(k) or 403(b) plan accounts increases by $500, to $19,000 for 2019, the IRS announced. Unchanged from 2018, employees who are at least 50 years old may contribute $6,000 in pretax catch-up contributions. (Notice 2018-83, IRB 2018-47)

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 $56,000
  • The annual compensation limit (i.e., the limit above which contributions can no longer be taken into account) increases $5,000, to $280,000
  • The dollar limitation concerning the definition of key employee in a top-heavy plan increases $5,000, to $180,000
  • The dollar limitation used in the definition of a highly compensated employee increases $5,000, to $125,000
  • The 2018 salary cut off for employees who take paid FMLA leave during 2019 is $75,000 (60% of salary for a highly compensated employee).

FICA wage base increases

The Social Security Administration has announced that the 2019 taxable wage base for the Social Security portion of FICA increases to $132,900. That’s a 3.5% hike over the 2018 wage base of $128,400. The 6.2% Social Security tax is payable by both employers and employees; in 2019, the maximum tax is $8,239.80. 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, 10-11-18)

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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 2019 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 2019, the exempt amount increases to $46,920 a year; $3,910 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 earn up to $17,640 a year, or $1,470 a month, without losing benefits. For these retirees, $1 in benefits is lost for every $2 they earn.

2019 PENSION COLAS ARE NEXT: The IRS has yet to release the 2019 cost of living adjustments for pretax contributions into 401(k) plans, pretax catch-up contributions, and other inflation-adjusted pension amounts. Payroll Legal Alert will report these figures as soon as the IRS releases them.