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Social Security benefits, taxable wage base go up in 2019

Pay stub showing Social Security Medicare FICA taxes SS card

Today is a great day for my mother. The Social Security Administration announced that she and her fellow Social Security recipients will get a get a 2.8 percent cost-of-living adjustment (COLA) in 2019.

The 2019 COLA — the largest since the 3.6 percent bump in 2011 — means the average single retiree's federal retirement benefit will be $1,461 or $39 more a month than this year. My mom is thrilled. Those 30+ bucks will cover her monthly phone bill.

Still stretching each month: Unfortunately, the upcoming benefits adjustment won't be enough to make up for more than a decade of lost Social Security buying power, according to the Senior Citizens League.

The Washington, D.C.-based nonprofit found, in a study released by the in June, that Social Security benefits have lost 34 percent of their buying power since 2000. A major bite into the benefits upon which almost 60 million Americans depend came in just the last two years.

The survey revealed a 4 percent loss in buying power from January 2017 to January 2018. And that happened even though beneficiaries got a 2 percent COLA for 2018.

As for the coming relatively big benefits bump, Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League, doesn't think it will satisfy recipients. "Even though we're having the highest COLA since 2012, I think people still express frustration because their costs are still increasing faster," Johnson told CNBC.

For what it's worth, despite my mother's glee today, I'll get confirmation of Johnson's analysis this weekend when I take Mum grocery shopping. That's when she'll again, as she does every trip, bemoan how much she's paying for food.

Taxable Social Security earnings, too: While most of today's Social Security attention is on folks who get the benefits, the SSA's announcement also included an amount of interest to all of still working and paying into the system via payroll withholding or estimated taxes.

In conjunction with the COLA that will take effect on Jan. 1, 2019, the amount of earnings that are subject to Federal Insurance Contributions Act (FICA) Social Security tax goes up to $132,900.

That's a $4,500 increase from this year's $128,400 wage base.

Technically, the wage base amount isn't indexed for inflation. Instead, each year that there's a COLA adjustment, the SSA uses a specific formula to set the maximum taxable earnings level so that it, too, can keep pace with, you guessed it, inflation.

Figuring FICA: As every wage slave is painfully aware, FICA mandates that each worker hand over 6.2 percent of pay each pay period to Uncle Sam for funding Social Security.

Bosses also must match that percentage of each employee's earnings, accounting for the total 12.4 percent FICA amount for Social Security for every worker.

The 2019 wage base hike means that the maximum going toward Social Security in FICA tax next year is $16,479.60 for a very well-paid worker.

Here's how the numbers break down:

Worker maximum Social Security FICA earnings   = $132,900
Maximum amount of payroll tax withheld from worker
(6.2% of $132,900) 
= $8,239.80
Maximum amount matched by employer
(6.2% of $132,900)
= $8,239.80
Maximum possible Social Security FICA tax in 2019
($8,239.80 employee + $8,239.80 employer)
= $16,479.60


If, however, you make $132,901 or more next year, your earning in excess of the wage base amount will not be subject to the Social Security payroll tax.

Good luck in asking your boss for that kind of raise!

No income tax cap on Medicare: Savvy workers might be questioning my math, saying more than 6.2 percent come out of their check every payroll period.

You're right.

FICA taxes total 15.3 percent of a worker's earnings. But that percentage is for Social Security and Medicare.

The Medicare portion, which goes toward the federal medical insurance program for eligible folks age 65 and older, is 1.45 percent of pay, again from both the employee and employer.

That portion of FICA isn't an issue when it comes to the annual wage base amount because there's no limit on wages that are subject to this combined 2.9 percent payroll tax.

So no matter how much more than $132,900 you make next year, the Medicare payroll tax will keep coming out of your pay and being matched by your boss.

And higher earners could pay even more into Medicare.

ACA add-on: The Affordable Care Act, aka Obamacare, assesses a 0.9 percent additional Medicare tax on employees who, as single taxpayers, earn more than $200,000 or more than $250,000 if married filing jointly.

Those Medicare surtax earnings limits are not adjusted for inflation.

And the add-on tax is still in effect, despite desires by Republicans to end it. It's also not matched by employers, but is borne only by the well-paid affected workers.

The bottom line is that all of us pay FICA taxes on some of our income.

With the 2019 hike in the Social Security wage base, most of us pay FICA on all of our income since we make more than that amount to collect earnings free of the retirement benefits tax.

And a few wealthier workers will pay more Medicare taxes on more of their income.

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