Tax Tip Tuesday 3: Social Security

Social Security

We have discussed the change in federal income tax rates and how to determine taxable income.  Of course, this will and is affecting your take-home pay. There are three (3) basic federal taxes that affect your paycheck.  They are, federal income tax withheld, Social Security tax and Medicare tax. Social Security Tax is calculated at 12.4 percent of gross income.  Half of the tax is withheld from your paycheck and the other half is matched and paid by the employer. The gross income that the tax is applicable to is capped after which the tax drops off. For 2017 the cap was $127,200.  In 2018 the cap is 128,400. Medicare tax is assessed at 2.9 percent, again split between the employee and the employer and is uncapped.

Though these rates are not affected by the new tax law, but rather, are established by the Social Security Administration, the increase in the wage cap may affect your take-home pay.  If you have multiple employers, be aware of your combined gross wages. If they exceed the cap the excess taxes withheld are refundable.

Other changes include a 2% cost-of-living adjustment in benefit checks, an increase in the maximum payout of $101 per month, the full retirement age has been increased to 66 years and four months (a two-month increase).  Those receiving SSA disability payments will be increased by $10 a month if not blind. Blind recipients will receive a $20 per month increase.

Another change in the tax law changes the status of alimony payment.  In prior tax years, alimony was a deduction for the payer and considered taxable income for the recipient.  Under the new code, alimony payments are no longer deductible from gross income and alimony received is no longer considered income.