The Social Security Administration has announced a few different increases for Social Security in 2018. First, the “good news” for beneficiaries is that they can expect to receive a 2 percent COLA increase in their benefit payments. We put the good news in quotations because the increase is based on a corresponding rise in the Consumer Price Index from 3Q 2016 to 3Q 2017, which beneficiaries always experience in advance of their COLA adjustments.
Moreover, for employers and payroll, there’s also been increase to the Social Security wage base from $127,200 to $128,700. This means an additional $1,500 will become taxable to the 12.4% Social Security portion (OASDI) of payroll taxes. (12.4% equals 6.2% for both the employee and employer contributions.) As before, there’s no limit to wages subject to the Medicare (HI) portion of the payroll taxes (2.9%) that make up the rest of payroll FICA taxes. Most payroll accountants have a solid beat on these FICA taxes, but you can find a free online payroll calculator to double-check your calculations from Bankrate.
These changes will have an immediate impact on payroll accountants who must adjust their payroll tax withholding and payments amounts at the start of the year. While certain corrections can be made in a timely manner, it’s important to get it right from the start. If you don’t, the company may be on the hook for late filing penalties and interest related to these underpayments and bookkeeping errors. This can be a costly mistake, especially for businesses and industries that regularly employ workers whose wages exceed the social security wage limit.
Changes Also Coming to Pension Plan/401(k) Contributions
The big headline for individuals and households is an increase in the contribution limit from $18,000 to $18,500. This increase applies to 401(k), 403(b), and most 457 plans, as well as the Thrift Savings Plan. But this is just the tip of the iceberg. There are also changes being made to the qualifying deductions and income phase-out levels for traditional IRA contributions, Roth IRA, and the Saver’s Credit. Meanwhile, certain limits on annual IRA contributions and catch-up contribution limits remain unchanged from 2017. The IRS has published all the details and fine print here.
The Role of Accounting Software
So, how do modern software solutions adapt to these new rules? Remote software services may seem like magic to the customer but may take considerable updating on the part of the software service provider. Even still, it’s a pretty efficient system. And in a sign of how industry standards have changed, even cheap software that uses payroll program downloads have built-in features that ensure accountants can simply “flip a switch” when it comes to integrating new rules for payroll adjustments. Withholding percentages, wage limits, and other aspects of payroll additions/deductions are all readily customized and then tweaked by the employer as needed to better manage their workforce, employee morale, and recruitment campaigns. These types of accounting software developers will also have a reliable download update mechanism so that payroll accountants have access to the latest tax tables and automated payroll calculations.