As inflation has come back into the economy’s conversation in the past three years, we have seen lots of publicity about the adjustments in social security payments to address inflation as well as the system’s overall actuarial challenges.
But lurking beneath this discussion is the annual adjustment in how much wage and self-employment income is subject to the 6.2% FICA tax (12.4% for those self employed). A decade ago only the first $117,000 in earnings were subject to tax. But in 2017 that number jumped to $127,200 and has since climbed steeply to $168,600. Put in real terms if you started making $170,000 a decade ago and your income has remained flat you are today paying 6.2% on an additional $53,000 in wages or $274 a month more in “contributions.” The year of year increase in the “draw” is $8,400 over last year’s $160,200 contribution limit. Thus, if your pay next year seems a tad lighter, there’s a reason.