A month into the final quarter of the year, the Social Security Administration (SSA) and IRS have announced that there will be changes affecting your Social Security withholdings and 401(k) deferral for 2016.
Social Security Wage Base Remains at $118,500 for 2016
The 2016 social security wage base will be $118,500, which is unchanged from 2015. As in prior years, there is no limit to the wages subject to the Medicare tax. Because of this, all covered wages are still subject to the 1.45 percent tax.
Just like 2015, wages paid during 2016 in excess of $200,000 will be subject to an extra 0.9 percent Medicare tax that will only be withheld from employees’ wages. Employers will not pay the extra tax.
The 2016 FICA tax rate, which is the combined Social Security tax rate of 6.2 percent and the Medicare tax rate of 1.45 percent, will be 7.65 percent for 2016 up to the Social Security wage base.
Another factor that will remain unchanged from 2015 is the maximum social security tax employees and employers will each pay. The amount will remain at $7,347.
Social Security wages for self-employed individuals in 2016 will also be $118,500. There is no limit on covered self-employment income that will be subject to the Medicare tax. The self-employment tax rate will be 15.3 percent up to the Social Security wage base. In 2016, the maximum Social Security tax for a self-employed individual will be $14,694.
FICA coverage threshold increases for domestic, election workers
The threshold for coverage under Social Security and Medicare for domestic employees (like nannies or babysitters) will be $2,000 in 2016, up from $100 in 2015. The coverage threshold for election workers will be $1,700 in 2016, also up from $100 in 2015.
401(k) Deferral, Over-50 Catch-Up Contributions Unchanged in 2016
There will also be cost-of-living adjustments for dollar limits on benefits and contributions under qualified retirement plans and other items for the 2016 tax year. However, pension plan limitations will not change for 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment.
Elective deferral limits for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $18,000. Catch-up contribution limits for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,000.
Limits on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000. However, other limitations will change because the increase in the index did meet the statutory thresholds.
If you would like more information about the changes you’ll see in 2016, visit the IRS website.
Like Saving Advice? Subscribe!
Subscribe to get the latest Saving Advice content via email.