Social Security Taxes Set To Soar For Top Earners In 2017

Tyler Durden's picture

Many Americans looking forward to Trump's promise of tax cuts from his administration are going to get a rude awakening when they get their first paychecks of 2017.  While Trump has vowed to cut marginal income tax rates for individuals and corporations, the social security tax levied on the nation's top earners is set to soar in 2017 for top earners.

For the 2015 and 2016 tax years, only the first $118,500 of earnings was subject to the 6.2% social security payroll tax.  That said, that "taxable minimum" is set to soar to $127,200 for the 2017 tax year, a 7.3% increase that will cost America's top earners an additional $539 this year.

As Bloomberg points out, the steep increase in 2017 is the result of the federal government making up for lost time as the "taxable minimum" is not allowed to increase in tax years during which benefit recipients don't get a cost-of-living 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 ended 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.

 

FICA

 

Overall, the tax hike is expected to take an incremental $11.6 billion out of American pockets in 2017 according to the Social Security Administration.  The 7.3% increase in the "taxable minimum" is the largest to hit taxpayers since 1983 when the maximum was still under $40k.

That said, despite the substantial 2017 increase in the taxable minimum, the overall percentage of taxable earnings subject to FICA tax has been on a steady decline since the early 80s as growing income disparity in the country has consolidated an increasing share of income in top earning households.

FCA

 

But, for those Millennials who suddenly feel some hope that they may actually be able to afford retirement now, please remember that, like many of America's public pensions, Social Security is still just another ponzi scheme that, even by their own numbers, will run out of money by 2034.  Nothing like "throwing good money after bad" as they say.

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LawsofPhysics's picture

Define "top earner"...

 

...the "let the majority eat cake" monetary, fiscal, social, political, and economic experiment continues.

same as it ever was...

(FYI- I do not consider $127,000 per year a "top earner")

OfAllElaboratePlans's picture
OfAllElaboratePlans (not verified) LawsofPhysics Jan 9, 2017 4:57 PM

Top Earner = 67 yo Meryl Streep will be taxed higher (so, sadly for her, she'll have less money to donate to her fellow pizza lovers HRC & Obama)

LawsofPhysics's picture

If i remember correctly, someone making $127,000 per year in the bay area trying to support a family of four is actually eligibile for SNAP!!!!

The "taxpayer" is fucked!

duo's picture

If you're self-employed, 1099 income is subject to 13% up to 127K, so it's a $1300 extra a year, or a marginal 48% tax rate until you hit $127K

wwxx's picture

 $16,510 is chicken feed, when it is going into the SS account.

 

wwxx

cheka's picture

dear nyc.dc

PUT THE MONEY BACK

zanez's picture

$540 on $127K of income? That's about 1 day's pay.  ZOMG

 

boattrash's picture

54 cents is more than I'm willing to accept without bitching. No new taxes, means NO NEW TAXES! Period.

zanez's picture

$540 on $127K of income? That's about 1 day's pay.  ZOMG

 

The Navigator's picture

The "taxpayer" is fucked!

The taxpayer is ALWAYS Fucked

The answer is known by us all.

Guillitones, ropes and tall tree branches, tar & feathers.

Pray Trump moves fast, otherwise no one is going to be happy.

I'm still stacking, planning, & prepping.

Silky Johnson's picture

It's getting quite close to the time, where I'm going to sit my balls down, watch TV and eat snacks all day. Fuck this shit!

dot.dot's picture

That's EXACTLY what I did 3 years ago.  Tax Donkey no more.

Just live simply and cheaply.  No eating out, no cable, etc.

overbet's picture

The IRS is one thing I hope Trump fixes. Going through an audit right now for a year where I paid more than "top earner" amount in taxes. I love writing the IRS $100k+ checks to later be audited and expected to pay more so Obama's tribe can vacation and to support dindus that want to hurt my family because they hate themselves. 

SilverRhino's picture

I fucking despise those people.  

IRS employee?  May you get bone cancer and die an extremely painful death.

Pinch's picture

Tramp will increase taxes, mark mah words.

Aw shucks, Preznit Tramp not who you thought he was?

MalteseFalcon's picture

"But, for those Millennials who suddenly feel some hope that they may actually be able to afford retirement now, please remember that, like many of America's public pensions, Social Security is still just another ponzi scheme that, even by their own numbers, will run out of money by 2034.  Nothing like "throwing good money after bad" as they say."

First of all, Social Security is largely a pay as you go system and so, by and large, it cannot go bankrupt.

Second, the US can print money as needed and Social Security cannot go bankrupt.

Third, as is demonstrated this year, the Social Security minimum can be adjusted at an inflation rate far higher than the "inflation" rate used to adjust premiums.

And if need be the minimum will be removed and the bankruptcy kabuki ends immediately.

Lastly if the government backs the scheme, it isn't a Ponzi scheme, because as long as it can print or tap its citizens, the scheme continues, indefinitely.

One more thing, after the boomers move on, the system will be fully solvent again with in its current form.

LawsofPhysics's picture

Yes.  Been there. Moral hazard is a real motherfucker, because eventually the productive entities simple say "fuck it" and produce for themselves and their tribe only. Moreover the productive people/tribes will demand something fucking real in exchange for the product of their labor.

This and this alone is probably the only thing that history is clear on and most likely the reason why PMs remain the preferred collateral at all central banks. It takes real work (calories) to mine and refine PMs.

Humanity has been devolving for quite a while as far as I can tell.

Takeaction2's picture
Takeaction2 (not verified) overbet Jan 9, 2017 5:45 PM

I went through a 2 year audit after donating $2300 X 2 (My Wife $2300 and Myself $2300) to Ron Paul (Coincidence???).  I am no longer scared of these FUCKS.  You ready for what they "Got" me on.  I opened up a Bank Account in Costa Rica for 3 days to transfer $39,000 down from MY ACCOUNT in OREGON.  I transfered the money...then closed it.  I bought a small house down there. The IRS said that I did not report opening a foreign bank account and that was a $25,000 penalty plus interest.  I could go on and on...but I learned some great things.  With the IRS...always push back...always fight them when you are right...and never lie or cheat them.  Do everything above board (Use every legal deduction you are allowed..)...and when they take something that is not theirs...go after it.   I may get down voted...but I am telling you from hard experience...

....and in regards to this article raising the Social Security tax to the level of $127,000 is nothing compared to what Trump is going to give back on the other side.

$539 more....really?  Who cares when you get to keep 15 to 20% more of what you earn?

Bemused Observer's picture

"I am no longer scared of these FUCKS."

Good for you, you've just taken their biggest weapon away...I wish more people would learn this. They operate on your FEAR of them, and what they can do. What folks forget though, is that they need a legal reason to do any of those things, and you can make sure they don't have it by minding your own record-keeping. If you AREN'T trying to evade your taxes, you ought to be able to put together a good enough 'folder o' facts' to feel confident enough to tell them basically to put up or shut up.

It is that confidence that does it, as I myself discovered many years ago. It does shake their resolve a bit, makes them just a TINY bit hesitant, and they start doing a little more asking and not as much telling. And it takes the edge off their 'tone'...

And being a bit aggressive in pursuing THEM with calls and certified letters demanding to know what the progress is and when the matter will be finalized throws them off a little too, I think...They must understand that you will aggressively defend yourself, and that you are NOT intimidated by them, but rather, pissed off that they are wasting YOUR time.

MachoMan's picture

Rules of the road for audits:

1.  As soon as you get notice from the tax authority of the audit, call a tax attorney.  I believe that an attorney is generally better than a CPA for this role simply because CPAs tend to be too passive.  However, a CPA is likely better than a general attorney because attorneys can't generally add or do rudimentary math.  Plus, if your tax return preparer screwed up for whatever reason, you don't want him representing you too!  [The IRS attempts to contact the tax return preparer usually.  Most don't respond because they know that if they don't, the IRS likely won't do anything with regard to a deficient return; I believe their present protocol is to do nothing unless there are a bunch of deficient returns from the same preparer].  You need to get representation in place prior to the time to respond on the notice;

2.  Get your representative a power of attorney (limited to IRS matters) ASAP and get him or her all the relevant documentation immediately.  The longer lead time they have, the better he or she can formulate a timely response;

3.  Do not give the tax authority a single document or communicate with them unless expressly approved by your counsel.  Further, your representative can request to deal directly with them (and the audit can be conducted at your representative's place of business, not your house or work).  However, do give the documents to your counsel that the IRS can subpoena.  Avoid requiring them to issue a subpoena.  If you're nice, then they're nice;

4.  Always push back.  If you were conservative on a particular transaction or issue, then turn every one of those issues loose and push the envelope as much as possible.  "I forgot to take X deduction, or account for Y, so I'll be taking them now to offset the crap that you find, if any."  [I've actually had audits where uncle sugar wrote a check at the end...  it does happen];

5.  Take it to appeals if you get an unfavorable ruling at the field audit level.  Sometimes revenue agents refuse to listen to reason or are assholes, but for the most part, they're just following protocol and cannot contemplate "the perils of litigation."  This means that once they find certain things, they're locked in.  They do like to put things on bows however, so if you can agree to pay the entirety of the tax due, then I've seen them waive penalties.  You're SOL on interest.  Appeals is a pretty informal process, so it's best to just wing an appeal and see what sticks.  They're not going to give you everything you want, but they might split the baby.  Often times this will be enough to avoid tax court;

6.  If you owe them money, then you owe them money...  and you generally can't put the toothpaste back in the tube for a tax year.  All you can do is argue with them and hope to keep it to a 3 year audit (% of inaccuracy).  Don't let them take it to 6 unless they prove it.  Remember, an audit isn't collections...  an audit just triggers collections (whenever the computers get around to sending you some letters).  You have a plethora of options available to reduce the amount owed due to inability to pay, to pay it over time, or to place yourself into "uncollectible" status...  just keep fighting.

PS, at all times, you have to assess whether you're throwing good money after bad.  Don't get sweet talked by a representative promising the world.  If he's costing you more than he's saving you, then it's time to get a new one or punt altogether. 

vq1's picture

Top earner.

I'm top ranking income, top tax bracket, top of housing costs, low debt and bottom of net worth. Big spigot and a big hole in the bottom of my bucket. Gov will insure I never escape the rat race, no matter how frugal or responsible I am. Might as well Yolo I suppose.

44_shooter's picture

Especially if you live on a coast.

Mikeyy's picture

"Many Americans looking forward to Trump's promise of tax cuts from his administration are going to get a rude awakening when they get their first paychecks of 2017."

 

Gawd, when the very first sentence is wrong and stupid, it really casts doubt on the intellect and credibility of the Tyler at work here.

 

Unless your first check is $127 grand, you won't see a bit of difference.  Only untill your income exceeds $118,000 for the year will you see a difference.  For the vast majority of Americans this comes a little later in the year than the first check.

Okienomics's picture

I take it you don't have personal experience with this, so I'll explain.  Someone on a payroll earning north of the SS cap sees a bigger check at some point during the year (the check after they cross the maximum).  From that point until the end of the year, their check is bigger... until the first of next year.  Starting on the paycheck after 1/1, the SS tax resets and voila, "rude awakening when they get their first paychecks of 2017."

Now, to put a fine point on it, there won't actually be any additional rude awakenings in 2017, there will just be a "later" bigger check then there would have been otherwise.  Subtle, hidden pain isn't really pain at all, is it.

BUT... for us self-employed folks... the pain is tangible.  Just today I wrote my quarterly check the U.S. Treasury, buying them a NEW FUCKING CAR. EVERY QUARTER I BUY THEM A NEW FUCKING CAR, DESPITE DRIVING a vehicle produced in the early 90's because I take care of shit and am prudent with my money.  When you have to write a check to pay taxes instead of having them magically deducted so you don't really see the money... THAT, my friend, is the real rude awakening.

stumpknocker55's picture

try paying 425K in taxes and being assessed a penalty because your magic ball didn't letcha know you were gonna win a "lottery" when the shale gas frenzy made lotsa po-folks in Louisiana and East Texas rich...until the tax men took 42.5%

Mikeyy's picture

You take it wrong.  I have plenty of personal experience with this.  Anyone who gets a "rude awakening" when their taxes go back to the same level as they were for most of the year before just isn't paying sttention.

 

Which btw  you later admit.  So I stick by my original point - there is no rude awakening, the tax break just comes later.  And whether one writes a check, or has one's  taxes withheld, the money is the same.  Any rude awakening that comes with writing a check is just the irrational mind at work.

therover's picture

Actually for the vast majority of Americans it never comes. I would guess 80-85% of the people never hit the max. 

Bill of Rights's picture

As usual taxed into oblivion. If it inst the Feds its the Fucking State, if it inst the State its the fucking Cities and Towns. Someday somehow it will all end.

reader2010's picture

That's Great. What we really need is to tax wealth not income. Because only tax slaves have "Taxable Income".

Bay Area Guy's picture

So they can increase the amount 7.3% because they gave Social Security recipients a 0.3% "raise"?

NoWayJose's picture

7.3% is the real inflation number for the 2 year period. Zero percent one year and 0.3% in the second year is all the entitlements get. They used to be more stealthy in hiding real inflation. This admits that they lie!

malek's picture

In your dreams.

7.3% is about the real inflation period for any single one of those 2 years.

az_patriot's picture

$127k a "top earner"?  WTF?  I'm self-employed -- this is going to get ugly.

user2011's picture

One night, I had a dream about future.  I dreamed of a ruthless government delibrately spreading fatal disease targetting elderly.    And just like that the government freed up tons of money. And it all went to pay raises and campaign funding of politicians......   A horrible dream indeed.....

db51's picture

Whatever the fuck you do, DO NOT take any vaccinations offered to "seniors" by Medicare.   No telling what the fuck they've been putting in those fucking things, but I'll guarantee you, there IS a plan to get rid of Boomers before they get to having REALLYbad medical issues.   I won't go near a fucking flu shot, or shingles vaccine....

daveO's picture

I'm convinced the pneumonia shot is bad news too.

duo's picture

and the Whooping Cough vaccine. These are all time bombs to kill off old people gullible enough to get the vacc.

Don't watch the network news.

BakedBeans's picture

One of my fears is being forced to consume the poisonous products of the "health care" industry, workers in the field are being forced to get various vaccinations as a condition of employment. I never go near them, but perhaps they got me with the cancer-causing polio vaccines laced with SV40   http://www.vaccines.news/2015-09-23-cdc-admits-98-million-americans-were...

 

stumpknocker55's picture

pretty sure that's how HIV and ebola got started...sloppy virology work with tainted chimps

DeathMerchant's picture

Funny, as there was some recent sloppy presidential work by the same people.

LawsofPhysics's picture

"And just like that the government freed up tons of money" ...

If there was actually anything in the social security "lockbox" you would be correct.  unfortunately, there isn't, nor are all the beneficiaries OLD!

mtanimal's picture

Every old person I know who gets flu shots has been diagnosed with alzheimer's or general dementia.  Every one who refuses to get them remains healthier, both mentally and physically.  Just sayin' ...

Bemused Observer's picture

All the years I worked as a nurse, I refused that shot.

During flu season, I was one of the few that never called out sick. I often had to fill in for coworkers who were home in bed, feverish and sick as dogs. I've been coughed on, sneezed on, sprayed with snot, it's like that virus died on contact with me.

I've had flu once in my life, in my early 20's. That's it. It was pretty fucked up, so my immune system probably went all medieval on it, because it has never messed with me again.

Now if only I could the same with the common cold. THAT is one annoying virus...

NumNutt's picture

How about the fact that all those old people will be looking to draw out of "the <empty>social security "lockbox" "?  think about it. Now does the plan start to look a little clearer to you?

Jim in MN's picture

They don't want you dead.

They want you SICK.

Big Twinkie's picture

In this order, I'm pretty sure they want you: stupid, fat, poor, in-debt, sick, dead, and finally, in hell.

rejected's picture

I was in a local SS office last week. It was jam packed, maybe 50-75 people. Saw about 5 seniors you imply you might like to see dead,,, the rest were women with children. Been at that office three times in the last couple years,,, each time the same make up of people.

daveO's picture

It takes a village, Hillary told me so.

Dr. Richard Head's picture

That's why is good to get paid as a pass through with an S-corp. No SS or medicare.