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Get ready to pay $500 more in taxes

Scorpio

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Get ready to pay $500 more in taxes

Bloomberg
Ben Steverman 7 hrs ago



It’s tax time again, and President-elect Donald Trump and his fellow Republican in Congress have promised to slash them—especially for corporations and the rich.
For millions of Americans, however, a tax increase will be the first thing they see. About 12 million workers will pay more this year thanks to an automatic adjustment in their payroll taxes. Unlike previous years, this rise in the Social Security “taxable minimum” —the amount of income subject to tax—is a whopper: 7.3 percent, the most in 34 years. That could cost each affected worker as much as $539, and much more if they’re self-employed.

Why is 2017’s increase so huge? And where does this taxable minimum come from anyway? Let us explain.

What’s changing this year?

Workers at the top of the income spectrum pay Social Security payroll taxes only on a portion of their wages. For the last two years, only the first $118,500 of earnings was subject to the 6.2 percent tax. In 2017, this taxable minimum jumps to $127,200.

How much could this cost me?

If you make less than $118,500, you won’t notice a difference. But if you earn more, an extra $8,700 could now be subject to the 6.2 percent Social Security payroll tax, costing you as much as $539 more by the end of the year. Employers, who pay their own 6.2 percent tax on payrolls, will see costs rise, too—self-employed workers could see their Social Security tax burden jump to more than $1,000. However, as always, they’re able to deduct the employer portion on their income tax returns.

What’s the total price tag to U.S. households?

About $11.6 billion in new tax revenue could come from the change in 2017, the Social Security Administration estimates.

Why such a big increase?

A 7.3 percent hike is way above inflation: The main U.S. consumer price index was up 1.7 percent in the 12 months ending in November (the latest data available), and it rose just 0.7 percent in all of 2015. So what’s going on here? Well, the Social Security taxable minimum is adjusted annually based on an index of U.S. wages, not consumer prices. The National Average Wage Index was up 3.5 percent in 2015, five times faster than inflation.

But the real reason for this sudden, steep hike is simply that the government is making up for lost time. The 2017 hike is essentially two years of wage gains packed into one. The wage index also rose 3.6 percent in 2014, but the Social Security Administration couldn’t raise the taxable minimum last year because rules prevent an increase from happening in a year when Social Security recipients don’t get a cost-of-living increase.

How unusual is a 7.3 percent increase?

It’s the largest percentage rise since 1983. When the Social Security tax began in 1937, it applied only to the first $3,000 earned, an amount that remained steady until 1951. Congress then periodically raised the taxable minimum until laws in the late 1970s began indexing it to wage growth.


© Ben Steverman BC-GET-READY-TO-PAY-500-MORE-IN-TAXES Adjusted for inflation, the rise in the taxable minimum looks less dramatic. You can still see, however, the impact of substantial rises in the 1960s and 1970s, which helped pay for Social Security benefit increases for middle and upper-middle-class Americans.

How many people are affected?

About 12 million will pay more because of the higher minimum this year, the SSA estimates, out of 173 million workers paying into Social Security. In any given year, about 6 percent of all workers make more than the taxable minimum, a number that’s been consistent for decades. The SSA estimates that almost 20 percent of workers reach the taxable minimum at some point in their careers, even if it’s only for one year.

Why does the taxable minimum exist?

The U.S. income tax was envisioned as a progressive tax, with the wealthiest supposedly bearing the largest tax burden and the lowest-income Americans paying nothing or even receiving tax credits. The Social Security payroll tax is unusual in that lower-income Americans end up paying a greater share of their income than the rich.

The main idea is that the Social Security taxes you pay should more or less correspond with the benefits you eventually receive. However, the benefit formula is progressive, with lower- and middle-income getting bigger Social Security checks relative to what they put in than the wealthy. No matter how much you contribute, the most you can get from Social Security this year is $2,687 per month.

Doesn’t Social Security need money?

In the course of the 2016 election campaign, a growing number of Democratic politicians and policy experts floated the idea of raising more revenue for Social Security. The idea was to use the money to expand benefits and patch the program’s long-term funding shortfall. Those ideas are largely dead under a Republican controlled White House and Congress.

One argument for raising the taxable minimum is that the Social Security payroll tax hasn’t kept up with massive, ever-widening income inequality in America. While the share of citizens who exceed the taxable minimum has held steady, the share of the nation’s income subject to the Social Security payroll tax has been slipping, from 90 percent in the early 1980s to less than 83 percent. That’s because workers at the very top are earning so much more than they used to, and the vast majority of their wages avoid Social Security payroll taxes.


© Ben Steverman BC-GET-READY-TO-PAY-500-MORE-IN-TAXES Does the rate hike mean my benefits will rise, too?

Barely. While the taxable minimum is based on an index of U.S. wages, Social Security benefits are based on prices. Given low inflation, they’re inching up just 0.3 percent. That 2017 cost-of-living adjustment means the average retired worker gets an extra $5 a month, bringing the average retiree's monthly Social Security check to $1,360.

Any other nasty surprises coming in 2017?

If you try to max out your retirement accounts every year, you may be disappointed to learn that the amounts you can contribute to an individual retirement account or a 401(k)-style retirement plan are holding steady. In 2017, there’s still an annual limit of $18,000 for contributions to a 401(k) and $5,500 for an IRA. Workers 50 and older can save an extra $6,000 in a 401(k) and $1,000 in an IRA, so-called “catch-up contributions” that are also the same as last year.

One change in 2017 that could be very costly to some Americans relates to tax refunds. A new law requires the Internal Revenue Service to hold onto refunds for people claiming the earned income or additional child tax credits until mid-February. The IRS also warned that new safeguards against fraud and identity theft could delay refunds further.

A delayed refund isn’t technically a tax increase. But it might feel like one for millions of low-income Americans who typically rely on refunds to pay back debt and cover basic expenses at the beginning of the year.

--With assistance from Jordan Yadoo in Washington.

http://www.msn.com/en-us/money/taxes/get-ready-to-pay-dollar500-more-in-taxes/ar-BBy3TZA?li=BBnbfcN
 

Rusty Shackelford

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More made up numbers. I know of very few people who have gotten a single raise in the last 5 years but Obummer's people are saying wages are increasing by +3% every year since 2014? What evs......
 

Usury

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Lots of raises in gov industry. Private sector not so much.
 

Rusty Shackelford

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I work at a government utility. A single $500 raise in last five years with substantial cuts to other benefits like HSA contributions as well as increased medical care premium contributions. Went from no employee share to now paying about 30% of premium.

Pretty standard of government workers at least in my area of country.
 

brosil

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I'm so glad I gave up working. Now I can be a drain on the system instead of supporting it.
 

917601

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More I read in a Business Insider piece, from memory, if not age 62 by 2017, a decrease by 30 percent (?) benefits if you take early retirement at age of 62 instead of 66.....and something about a 30 percent across the board decrease in all payments, even to those collecting,beginning in 2026 or 2028....unable to find the article.
 

Irons

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#9
I'm so glad I gave up working. Now I can be a drain on the system instead of supporting it.
Ha, sweet! I'm not a drain yet but I don't make shit for money so I don't contribute much.

,
 

southfork

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(( The main U.S. consumer price index was up 1.7 percent in the 12 months ending in November))

And they give seniors a .3% cost of living. Then raise medicare more than the increase so no cola at all, it will never get better.