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FICA Wage Base Increase

On October 18, the Social Security Administration announced that the Federal Insurance Contributions Act (FICA) wage base will increase from $118,500 in 2016 to $127,200 in 2017. The increase of $8,700 is the largest in the history of FICA withholding.

In order for the FICA wage base to increase, Social Security recipients must have received a Cost of Living Adjustment (COLA). For 2015, there were no COLA adjustments to Social Security. The upcoming increase reflects the growth over the past two-year average earnings.

Of the 173 million workers that will pay Social Security in 2017, approximately 12 million will pay more because of the increase in the taxable minimum. While this is a large increase, the change in the wage base will provide Social Security recipients an average of $5 - $10 (more or less) per month due to the number of people who are currently paying into the program, and the rate in which people are becoming eligible.

Important Action Items:

  • On January 1, companies must begin using the new wage base to calculate FICA withholdings and gross ups.
  • If you have not reviewed your Relocation Policy recently, now is the time to do so. Make sure your Relocation Gross Up Policy is aligned with your business and cultural requirements.

For some companies, this change may simply reflect the change in cost associated with doing business. For others, this change might require a policy change affecting either the gross up component or a possible change in the allocation of allowable costs.