Did you know the national average wage index went up? You might have missed the news, but it’s likely you will notice one impact: higher self-employment taxes.

How are the two related? The index is used to calculate the social security wage base, which is the amount of income subject to the 12.4% social security portion of the self-employment tax. When the index goes up, the wage base does too, and more of your income is taxed.

The wage base does not affect the 2.9% Medicare portion of the self-employment tax. Medicare tax is assessed on all net income from self-employment, including amounts above the base. The 0.9% Additional Medicare Tax is not affected either. That tax applies to your compensation in excess of $250,000 when you’re married filing jointly ($200,000 when you’re single).

For 2016, the wage base was $118,500. For 2017, the wage base will be $127,200. That means an additional $8,700 of the net profit from your business is subject to social security tax in 2017. The effect is an increase in the amount you pay, even though the total self-employment tax rate of 15.3% remains unchanged.

Please contact us for more information.

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