Social Security Maximum Taxable Earnings Unchanged for 2016 (SSA Press Release; SSA Fact Sheet)

The Social Security Administration (SSA) has announced that Social Security and Supplemental Security Income (SSI) benefits will not automatically increase in 2016. The rates for Old-Age, Survivors and Disability Insurance (OASDI) and Medicare Hospital Insurance (HI) taxes will remain at a combined 7.65 percent in 2016. Because there was no increase, the maximum taxable earnings for OASDI purposes will remain at $118,500 for 2016.

The SSA cost-of-living adjustments (COLAs) are based on the rise in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of 2014 through the third quarter of 2015. Since there was no increase in the CPI-W during that period, under the existing law, there can be no COLA in 2016. Because there is no COLA, the Social Security wage base is unchanged, the SSA explained.

For the year in which an individual attains full retirement age, the retirement earnings test exempt amount remains at $41,880 for 2016. The test applies to earnings from the months prior to when the individual reaches full retirement age. One dollar in benefits will be withheld for every $3 in earnings above the limit. No limit on earnings will be imposed beginning in the month in which the individual reaches full retirement age.

For retirees under full retirement age, the retirement savings test exempt amount will remain at $15,720 for 2016, with $1 withheld for every $2 in earnings above the limit.

Comment. The annual inflation factor under the Tax Code that many annual pension/retirement plan amounts use (see Code Sec. 415(d)(2)(A)(B)) is consistent with that used by the SSA. Wolters Kluwer projects that the outcome, after rounding conventions are applied in connection with a 0.0745-percent inflation factor, is that amounts that applied in 2015 will remain the same for 2016. These include, among others, elective deferral limit for 401(k), 403(b), etc. plans ($18,000), annual compensation limit under Code Sec. 401(a)(17) ($265,000) and defined contribution plan contribution limit under Code Sec. 415(c)(1)(A) ($53,000). The IRS is expected to release the official 2016 amounts for these Tax Code-associated amounts in late October (see IR-2014-99, October 23, 2014).

SSA Press Release: Law Does Not Provide for a Social Security Cost-of-Living Adjustment for 2016, 2015FED ¶46,427

Social Security Fact Sheet: 2016 Social Security Changes, 2015FED ¶46,428

Other References:

Code Sec. 1401

CCH Reference – 2015FED ¶32,543.01

CCH Reference – 2015FED ¶32,543.07

CCH Reference – 2015FED ¶32,543.26

Code Sec. 1402

CCH Reference – 2015FED ¶32,580.01

Tax Research Consultant

CCH Reference – TRC INDIV: 63,050

CCH Reference – TRC INDIV: 63,052

CCH Reference – TRC INDIV: 63,054

CCH Reference – TRC INDIV: 63,060

CCH Reference – TRC INDIV: 63,100

CCH Reference – TRC INDIV: 63,108

CCH Reference – TRC INDIV: 63,500




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