News & Information

CCH® UNEMPLOYMENT INSURANCE — 10/17/17

2018 OASDI tax and earnings base increases to $128,700; COLA is 2.0%

Social Security beneficiarieswill see a small increase in their monthly checks in 2018—2.0%.This cost-of-living adjustment, or COLA, will produce an estimatedaverage monthly benefit of $1,404 for all retired workers in 2018,$27 a month more than in 2017. The COLA increase will be applied tothis coming year's benefits, beginning with benefits for December2017, which are payable in January 2018.

The amount ofearnings subject to taxation under FICA and SECA, the “wage base,”is also going up in 2018. The 2018 wage base of $128,700 is $1,500higher than the 2017 amount of $127,200.

The benefitand wage base increases for 2018 were announced October 13 by theSocial Security Administration in a press release.

Tax increase appears in FICA tax deductedfrom individuals' paychecks

The tax increasewill show up in the FICA tax deducted from the paychecks of thoseindividuals earning above the 2017 wage base of $127,200. Althoughthe tax rate for the Old-Age, Survivors and Disability Insurance (OASDI)portion of the tax under the FICA has held steady at 6.2% since 1990,the amount of wages subject to the tax increases each year based onincreases in the national average wage.

The $128,700earnings base for 2018, which applies only to the 6.2% OASDI portionof the Social Security tax, could result in a FICA tax increase ofas much as $93 for employees (and their employers) whose earningsexceed the 2017 tax and earnings base of $127,200. Self-employed individualsmay owe as much as $186 in additional self-employment (SECA) tax in2018 since they also must pay the “employer” portion of the taxes.However, they can recoup some of this amount through a deduction ontheir federal income tax return. There is no limit on the amount ofearnings subject to the 1.45% Medicare (hospital insurance) portionof the tax.

About 12 million workers out of a total ofapproximately 175 million workers who will pay Social Security taxesin 2018 are affected by the higher wage base for 2018, according tothe SSA.

No change intax rates

The employee/employer Social Security taxrate remains at 7.65% for 2018, including 6.2% for the OASDI portionand 1.45% for the hospital insurance portion. For the self-employed,the rate continues to be 15.3%. Note that self-employed persons calculatetheir net earnings as gross earnings reduced by 7.65%, and they deducthalf of their Social Security taxes from their net earnings for federalincome tax purposes.

Changein CPI-W drives amount of increase

The cost-of-livingincrease of 2.0% will begin with Social Security checks that are receivedin January 2018. (Increased payments to more than 8 million SupplementalSecurity Income beneficiaries, however, will begin on December 29,2017.)

The 2.0% increase is based on the rise in theConsumer Price Index for Urban Wage Earners and ClericalWorkers (CPI-W)from the third quarter of 2016 through the third quarter of 2017.The CPI-W reflects cost increases for wage earners and thus excludesthe impact of cost increases on higher income earning self-employedprofessionals and business owners.

The Consumer PriceIndex for All Urban Consumers (CPI-U) increased 2.2% over the last12 months to an index level of 246.819. The index for all items lessfood and energy rose 1.7%. The food index increased 1.2%, while theenergy index rose 10.1%. The CPI-W increased 2.3% over the last 12months to an index level of 240.939.

Retired worker's average monthly benefit becomes $1,404

ForSocial Security beneficiaries, the average monthly benefit (priorto deduction for the Part B Medicare premium) for all retired workerswill rise to $1,404 in 2018, up from the average benefit of $1,377paid one year earlier. The maximum Supplemental Security Income (SSI)monthly benefit for an individual will rise to $750, up from $735,and the maximum SSI payment to a couple will rise to $1,125, up from$1,103.

Domestic employeeand election worker coverage

For 2018, there is a $100increase in the amount of wages a domestic worker may earn withoutbeing subject to FICA taxes. An employer may pay a domestic worker,such as a maid or a nanny, up to $2,100 in 2018 without having towrestle with federal withholding on wages. The threshold for electionworkers remains $1,800.

Age65 birthday celebrants in 2018 required to wait until 2019 for full benefits

Workers who attain age 65 in 2018 will haveto wait until 2019 to retire if they wish to receive their fullretirementbenefit. A gradual rise in the full retirement age began in 2000 resultingfrom the 1983 amendments to the Social Security Act, which increasedthe full retirement age from age 65 to age 67. The only individualsattaining full retirement age in 2018 will be individuals attainingage 66, i.e.,individuals born January 2, 1952, through January 1,1953. For such individuals, the maximum possible monthly benefit is$2,788. Full retirement age will remain at age 66 for the next threeyears for individuals born January 2, 1943, through January 1, 1955.

Reduced benefits for early retirees

Workersmay retire as early as age 62, but they will receive a reduced benefitif they do. The fullretirement age of 66, for workers reaching age62 in 2018 (66 and four months, for those individualsborn in 1956),is also based on the 1983 amendments. The practical effect of thischange is to slightly decrease the amount of early retirement benefitspayable to individuals who reach age 62 in 2018 by increasing thereduction amount in the benefit formulas by 5/12 of 1.0% of an individual'sprimary insurance amount (PIA) for each additional month of retirementbeyond 36 months. This process is explained more fully in the UnemploymentInsurance Reporter with Social Security at ¶12,305 in the “SocialSecurity: Benefits Explained” division. PIAs are explained at ¶12,210 and ¶12,211 inthe same division.

Increasesfor other beneficiaries

For an aged couple, both receivingbenefits, the average monthly Social Security benefit becomes$2,340(up from the average benefit of $2,294 paid when last year's increasetook effect in December 2016). For a widowed mother and two children,the average monthly benefit becomes $2,771 (up from $2,717). For anaged widow or widower living alone, the average monthly benefit becomes$1,336 (up from $1,310) and for a disabled worker with a spouse andone or more children, the average monthly benefit becomes $2,051 (upfrom $2,011). The average monthly benefit for all disabled workersbecomes $1,197 (up from $1,173). All of these benefit amounts assumesteady earnings since age 22 and no earnings prior to that point.

Benefit computation formula changes

Thebend points used in the computations of the PIA for workers who firstbecome eligible to receive a benefit in 2018, or who die in 2018 beforebecoming eligible, will be $896 and $5,399, respectively. The2018eligibility year PIA formula, which is based on the worker's averageindexed monthly earnings(AIME) throughout his or her career, thuswill be 90% of the first $896 of AIME, plus 32% of AIME over $896through $5,399, plus 15% of any AIME in excess of $5,399

Maximum family benefit increases

Themaximum family benefit in cases involving workers who first attainage 62, become disabled or die in 2018 will be computed as 150% ofthe first $1,145 of the worker's PIA, plus 272% of the worker's PIAover $1,145 through $1,652, plus 134% of the worker's PIA over $1,652through $2,155, plus 175% of the PIA in excess of $2,155.

Disability thresholds

Theamount of monthly earnings in 2018 that will give rise to a presumptionthat a disability beneficiary is no longer disabled, that is, theamount that is deemed sufficient to demonstrate an ability to engagein “substantial gainful activity” is $1,180, an increase of $10 from2017. A higher threshold of $1,970 willapply to blind beneficiariesin 2018. Disability beneficiaries may work for as many as nine monthsduring any 60-month period without affecting their right to receivebenefits. This is known as “trial work.” In 2018, a disabled beneficiarywho works will not be treated as having engaged in trial work forany month in which his or her earnings are no more than $850, an increaseof $10 over the 2017 limit.

There is no trial work periodfor Supplemental Security Income (SSI) disability beneficiaries. However,if an SSI beneficiary is working, has only earnings, and does notpay expenses in order to work, he or she may earn up to $1,585 permonth in 2018 before SSI federal cash benefits stop. In 2017, an individualcould earn up to $1,555. This amount is based on an exclusion of thefirst $85 of monthly earned income (assuming the person has no otherincome) plus a monthly deduction of $1 for every $2 earnedthereafter.SSI beneficiaries in states that provide a supplement to the federalSSI benefit can earn evenmore before cash payments stop. However,if an individual has earnings of $1,180 or more in 2018, thentheindividual would be considered to be engaging in “substantial gainfulactivity” and would probablynot be eligible for SSI disability benefitsunless he or she is blind. Note that the SSI student exclusion is$7,350 per year in 2018.

Miscellaneousadditional changes

The amount of earnings requiredfor a quarter of Social Security coverage in 2018 increases to $1,320,up from $1,300 in 2017.

The national average wage indexfor 2016 (most recent available) is $48,664.73. The index is 1.18%higher than that of 2015.

The “old-law” contributionand benefit base increases from $94,500 in 2017 to $95,400 in 2018.

Thefees for services performed by a representative payee will be $42and $80 in 2018. align=“center”

Retirementtest amounts rise

The amounts that Social Securitybeneficiaries can earn without having their retirement benefitsreducedalso will go up next year.

Although the Senior Citizens'Freedom to Work Act of 2000 eliminated the annual earnings test asof January 2000 for workers between full retirement age (age 66 in2018 for workers who attained age 65in 2017) and age 69, workersunder the full retirement age of 66 who are receiving benefits remainsubject to the test and can earn up to $17,040 in 2018, or $1,420per month, without having theirbenefits reduced. This is an inflation-adjustedincrease of $120 over the 2017 annual limit. One dollar in benefitsis withheld for every $2 in earnings above the limit.

Amodified test applies to a worker in the year that he or she reachesfull retirement age. Thus, workerswho reach age 66 in 2018 may earnup to $45,360 in the months preceding the attainment of fullretirementage without having their benefits reduced. This is an increase of$480 over the 2017 annual limit of $44,880. One dollar in benefitsis withheld for every $3 in earnings above the limit. Once anindividualreaches full retirement age, benefits are no longer subject to anyretirement test. Beneficiaries age 70 and older have not been subjectto benefit reductions based on earnings since 1983.

Medicare deductibles, premiums in 2018

Aswe go to press, the Department of Health and Human Services has notyet announced the standard Medicare Part B premium for 2018. However,if the premium does increase, about 70% of all SocialSecurity beneficiarieswould be held harmless, or not responsible, for the increase in PartB premiums by Act §1839(a) (42 USC §1395r). Individualswho would not be held harmless are lower income beneficiaries whosepremiums are paid by Medicare, higher income beneficiaries who payincome-related Part B premiums, and new enrollees.

Official notice to appear in FederalRegister

The Social Security Administration'sofficial publication of the formula adjustments, cost-of-livingincreases,and tax and wage bases that will affect Social Security benefit computationsin 2018, as well asits explanations of how the adjustments are calculated,will appear in the Federal Register shortly.