The Social Security Administration (SSA) has announced that the maximum wage amount in the Social Security tax calculation, including supplemental income from stock compensation, will grow from $118,500 in 2016 to $127,200 in 2017. Therefore, at the 6.2% Social Security tax rate, the maximum annual amount that you can owe will increase from $7,347 in 2016 to $7,886.40 in 2017. This is a surprising jump of more than 7%, especially after no change in the wage base from 2015 to 2016.
The increase presents a year-end-planning strategy to consider. When you exercise nonqualified stock options or when restricted stock/RSUs vest, you owe Social Security tax up to this yearly income ceiling (Medicare tax is uncapped). If your yearly income is already over that threshold, you can exercise nonqualified stock options or stock appreciation rights before the end of 2016 without paying Social Security tax, and therefore you can keep an extra 6.2% of the related income. Were you to wait until January, your yearly wage base would start at $0, and Social Security tax would again apply up to the new maximum for that year. If you are already over the wage base for 2016 and expect to be eventually over the wage base for 2017, you can therefore save the $539.40 increase in Social Security tax simply by exercising stock options this year rather than in 2017.
Visit Us This Week At The NASPP Annual Conference In Houston!
We are excited to be at the NASPP's annual conference this week in Houston (October 24–27). As always, myStockOptions has its cheerful booth in the exhibit hall, where our editor-in-chief Bruce Brumberg is available as an NASPP-designated expert to answer questions on stock plan education/communications and on equity comp taxation. Bruce is also speaking on Tuesday at a panel in one of the conference sessions: Mind Your Ds & Ts: Death, Divorce, Disability and Terminations, a discussion of proactive measures to help your company, its employees, and their families better prepare for life events related to equity awards, including retirement, disability, death, and divorce. The session will take place on Tuesday, Oct. 25, 12:45–1:45 p.m. If you're attending the conference, please stop by our exhibit booth for a chat and pick up a myStockOptions souvenir!