2018 Contribution Limits and Other Updates for Payroll

The IRS and the SSA recently announced increases to limits that will affect 2018 payroll and withholdings. Please see the highlights below.

Social Security Wage Base for 2018:

The Social Security wage base will increase to $128,700, up from $127,200 in 2017. The maximum Social Security tax that employers and employees will each pay is $7,979.40 ($128,700 x 6.2%), and a self-employed person with at least $128,700 in net self-employment earnings will pay $15,958.80 for the Social Security part of the self-employment tax.

The Medicare component remains 1.45% of all earnings, and individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) will pay an additional 0.9% in Medicare taxes. An employer is required to withhold the additional Medicare tax on an individual even though they won’t owe the tax because they don’t meet the $250,000 threshold for joint filers. The taxpayer can claim credit for any excess withheld Medicare tax on their 1040.

2018 Pension Plan Amounts:  

The Internal Revenue Service announced the cost-of-living adjustments affecting dollar limitations for retirement plans for tax year 2018:

The elective deferral limit for employees who participate in 401(k), 403(b), and most 457 plans will increase to $18,500, up from $18,000 in 2017.

  • The maximum 401(k) catch-up contribution per year for those over 50 years old will remain at $6,000 in 2018. This is the same for 403(b) and 457 plans. The catch-up contribution is IN ADDITION TO the regular contribution limit.
  • Limit on elective deferrals to SIMPLE retirement accounts as well as the catch-up contribution maximums will remain the same: $12,500 and $3,000, respectively.
  • Defined benefit plan limit – $220,000, up from $215,000 in 2017.
  • Defined contribution plan limit – $55,000, up from $54,000 in 2017.

2018 Nanny (Household Employee) Tax:

In 2018, household employees must make $2,100 (up from $2,000 in 2017) before FICA taxes can be withheld. This threshold applies separately to each household employee.

HSA Limits for 2018:

  • Individuals – $3,450 (up from $3,400 in 2017)
  • Family – $6,900 (up from $6.750 in 2017)
  • Catch-up Contributions – $1,000 (no change from 2017)
    • Catch-up contributions can be made any time during the year in which the participant turns 55.

 

If you would like additional information or to discuss the topics mentioned, please contact Kelley J. Wolfe, CPA at 317-260-4482 or kwolfe@greenwaltcpas.com