HR is brimming with acronyms, which can be hard to keep up with. Here we'll explore FICA, COLA, and the new social security payroll tax cap for 2019.
When it comes to running a small business, there are a million things on your plate and in your mind all the time, especially around the end of the year. And on top of throwing holiday office parties and navigating everyone’s time off requests, there still exist all of the regular day-to-day business operations that never stop.
Having employees means managing payroll, (even while dodging bank holidays towards the end of the year) and running payroll means withholding the appropriate amount of local, state, and federal payroll taxes from your employees’ paychecks—and those numbers usually change every year. The Social Security payroll tax cap is one number that is adjusted annually that every employer with a payroll needs to pay attention to at the start of every new year to make sure they’re deducting the correct amount of taxes from their employees.
As 2018 comes to a close and 2019 is just around the corner, here is everything you need to know about the Social Security payroll tax cap for the coming year.
What are FICA and COLA?
First, the Federal Insurance Contributions Act (or FICA, for short) is the portion of the Social Security law that governs the amount of taxes that will be collected to support social security. Sometimes people refer to it as simply the Social Security tax, but know that it’s the same thing as FICA. There is typically a different social security payroll tax cap each year.
FICA taxes are collected to not only fund Social Security, but the Medicare program as well. The idea is that everyone pays into the system during their working years and benefits from the system by receiving payments later in life when they’re no longer working, although it’s unclear how long Social Security will actually be able to sustain itself as the Baby Boomer generation leaves the workforce.
The cost of living adjustment for Social Security tax is an increase of 2.8% from 2018 to 2019.
COLA is an abbreviation for the cost of living adjustment for the Social Security tax that changes each year. The cost of living adjustment for Social Security tax is an increase of 2.8% from 2018 to 2019.
What is the social security cap for 2019?
The percentage of income that is taken out as Social Security tax is the same each year—12.4% split evenly between employers and employees. What changes is the limit on taxable income, which is based on the cost of living adjustment mentioned above.
Because of the annual COLA, the Social Security Cap, otherwise known as the maximum amount of income that’s taxable by FICA, will rise from $128,400 in 2018 to $132,900 in 2019.
Individuals who work multiple jobs should note, however, that all of your employees will be withholding FICA taxes and, between all of them, there can be a chance that you’ve exceeded the social security cap for 2018 without even knowing it. If so, you can file for a refund when tax time rolls around using form 1040 when you file your return.
How much is FICA in 2019?
The percentage of FICA stays the same year after year, which comes out to 7.65% for individual employees. In 2018 the maximum Social Security contribution was $7,960.80 per person, but because of the 2.8% increase to the wage base that funds Social Security, the new maximum Social Security contribution is $8,239.80 for 2019.