2019 Payroll Taxes Changes That You Should Know About

Starting Jan. 1, 2019, the maximum earnings that will be subject to the Social Security payroll tax will increase by $4,500 to $132,900—up from the $128,400 maximum for 2018, the Social Security Administration (SSA) announced Oct. 11.  The taxable wage cap usually is automatically adjusted upward each year based on increases in the national average wage.  About 177 million U.S. wage earners will pay Social Security taxes next year. Among them, nearly 12 million workers who earn above $128,400 will see more of their earnings taxed, according to the SSA.

Payroll Taxes: Cap on Maximum Earnings

2019 Maximum Earnings

  • Social Security:  $132,900
  • Medicare:  No Limit

2018 Maximum Earnings

  • Social Security:  $128,400
  • Medicare:  No Limit

Source: Social Security Administration.

FICA Rates
Social Security and Medicare payroll taxes are collected together as the Federal Insurance Contributions Act (FICA) tax. FICA tax rates are statutorily set and can only be changed through new tax legislation.

Social Security is financed by a 12.4 percent payroll tax on wages up to the taxable earnings cap, with half (6.2 percent) paid by workers and the other half paid by employers. Self-employed workers pay the whole 12.4 percent.

For employers and employees, the Medicare payroll tax rate is a matching 1.45 percent on all earnings (self-employed workers pay the full 2.9 percent), bringing the total Social Security and Medicare payroll withholding rate for employers and employees to 7.65 percent—with only the Social Security portion limited to the taxable maximum amount.

2019 FICA Rate (Social Security + Medicare withholding)
Employee 7.65%  (6.2% + 1.45%)

Employer 7.65%  (6.2% + 1.45%)

Self-Employed 15.3%  (12.4% + 2.9%)

*Note: For employed wage earners, their Social Security portion is 6.2% on earnings up to the applicable taxable maximum cap. Their Medicare portion is 1.45% on all earnings.

Additional Medicare Tax
The tax rates shown above do not include an additional 0.9 percent in Medicare taxes paid by highly compensated employees.

Under a provision of the Affordable Care Act, the employee-paid portion of the Medicare FICA tax is subject to the 0.9 percent additional Medicare tax on amounts over statutory thresholds that are not inflation-adjusted and thus apply to more employees each year.

The threshold annual compensation amounts that trigger the additional Medicare tax are:

  • $250,000 for married taxpayers who file jointly.
  • $125,000 for married taxpayers who file separately.
  • $200,000 for single and all other taxpayers.

Additional Medicare tax withholding applies to wages and self-employment income in excess of the thresholds in a calendar year.

This added tax raises the wage earner’s Medicare portion of FICA on compensation above the threshold amounts to 2.35 percent; the employer-paid portion of the Medicare tax on these amounts remains at 1.45 percent.

The additional Medicare tax should not be confused with the alternative minimum tax on high incomes, which does not involve mandatory payroll withholding. To learn more, see the IRS webpage Questions and Answers for the Additional Medicare Tax.

Adjust Systems, Notify Employees
Employees whose compensation exceeds the current $128,400 maximum will see a decrease in net take-home pay if they don’t receive an annual raise that makes up for the payroll tax’s bigger bite.

By the start of the new year, U.S. employers should:

  • Adjust their payroll systems to account for the higher taxable wage base under the Social Security payroll tax.
  • Notify affected employees that more of their paycheck will be subject to payroll withholding.
  • Take into account the increased taxes that must be paid for affected positions.
  • Expect some pushback from employees who may want to be “made whole” for their share of the extended tax hit

Social Security Benefits to Increase
Monthly Social Security and Supplemental Security Income benefits for more than 61 million people in the U.S. will increase by 2.8 percent in 2019, the SSA also announced. The Social Security Act ties the annual cost-of-living adjustment (COLA) to increases in the consumer price index, as determined by the Department of Labor’s Bureau of Labor Statistics.

According to a new 2019 SSA fact sheet, in January 2018:

  • The maximum Social Security benefit for workers retiring at full retirement age in 2019 will increase to $2,861 per month, up from $2,778.
  • The average Social Security benefit will rise to $1,461 per month, up from $1,422 this year.

The annual Social Security COLA is now based on the increase in the consumer price index for urban wage earners and clerical workers.

2019 Income Tax Brackets
Income tax bracket adjustments for tax year 2019 were issued in November 2018 by the IRS in Revenue Procedure 2018-57. The level of income that is subject to a higher tax bracket can influence a number of decisions by employees, including how much salary to defer into a traditional 401(k) plan, which reduces taxable income for a given year by the amount contributed, or whether to participate in a nonqualified deferred income plan, if that option is available through the employer.

A comparison of income tax rates and ranges for 2019 and 2018 follows below.

Single Filing Individual Return (other than surviving spouses and heads of households)

Tax Rate2019 Taxable Income2018 Taxable Income
10%$0 – $9,700$0 – $9,525
12%$9,700 – $39,475$9,525 – $38,700
22%$39,475 – $84,200$37,700 – $82,500
24%$84,200 – $160,725$82,500 – $157,500
32%$160,725 – $204,100$157,500 – $200,000
35%$204,100 – $510,300$200,000 – $500,000
37%Over $510,300Over $500,000

Married Filing Jointly (and surviving spouse)

Tax Rate2019 Taxable Income2018 Taxable Income
10%$0 – $19,400$0 – $19,050
12%$19,400 – $78,950$19,050 – $77,400
22%$78,950 – $168,400$77,400 – $165,000
24%$168,400 – $321,450$165,000 – $315,000
32%$321,450 – $408,200$315,000 – $400,000
35%$408,200 – $612,350$400,000 – $600,000
37%Over $612,350Over $600,000

Married Filing Separate Returns

Tax Rate2019 Taxable Income2018 Taxable Income
10%$0 – $9,700$0 – $9,525
12%$9,700 – $39,475$9,525 – $38,700
22%$39,475 – $84,200$38,700 – $82,500
24%$84,200 – $160,725$82,500 – $157,500
32%$160,725 – $204,100$157,500 – $200,000
35%$204,100 – $306,175$200,000 – $300,000
37%Over $306,175Over $300,000

Heads of Households

Tax Rate2019 Taxable Income2018 Taxable Income
10%$0 – $13,850$0 – $13,600
12%$13,850 – $52,850$13,600 – $51,800
22%$52,850 – $84,200$51,800 – $82,500
24%$84,200 – $160,700$82,500 – $157,500
32%$160,700 – $204,100$157,500 – $200,000
35%$204,100 – $510,300$200,000 – $500,000
37%Over $510,300Over $500,000

Revenue Procedure 2018-57 also states that among other income tax adjustments for 2019:

  • The standard deduction for single taxpayers and married taxpayers filing separately rises by $200 to $12,200.
  • The standard deduction for married taxpayers filing joint returns rises by $400 to $24,400.
  • The standard deduction for heads of household rises by $350 to $18,350.
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