Payroll Tax Deduction, Exempt Classification Rates Will Rise in 2018

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For 2018, the Social Security Administration announced that the Social Security taxable wage base will rise by $1,500—from $127,200 to $128,700 maximum taxable earnings.

In addition, the California Department of Industrial Relations (DIR) announced rate changes for the computer software employee exemption and the licensed physician and surgeon exemption. The new rates take effect January 1, 2018.

Social Security

The Social Security withholding rate is unchanged for 2018 and remains at 6.2%, up to the maximum taxable amount. The Federal Insurance Contributions Act (FICA) tax rate—which is the combined total of the Social Security tax rate and the 1.45% Medicare tax rate—also remains unchanged at 7.65%.

Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9% in Medicare taxes.

There is no limit on the amount of wages subject to the Medicare tax.

Exempt Classifications

For the computer software employees’ exemption:

•The minimum hourly rate of pay exemption increased to $43.58 from its previous rate of $42.35;

• The minimum monthly salary increased to $7,565.85 from its previous rate of $7,352.62; and

• The minimum annual salary exemption increased to $90,790.07 from its previous rate of $88,231.36.

For the licensed physician and surgeon exemption:

• The minimum hourly pay for licensed physicians and surgeons increased to $79.39 from $77.15.

These rates are tied to the California Consumer Price Index (CCPI) for Urban Wage Earners and Clerical Workers. The 2018 rate changes reflect the 2.9% increase in the CCPI.

Minimum Wage Increase

Remember that California’s minimum wage will also increase on January 1, 2018. This increase will affect the commonly used professional, executive and administrative exemptions. Individuals in these classifications must be paid at least two times the state minimum wage, in addition to meeting all other legal requirements for this exemption.

White Paper

Download the California Chamber of Commerce free white paper 2018 Minimum Wage Hike Brings Changes for California Employers to learn more. Members can access the free minimum wage white paper in the HR Library on HRCalifornia.

More information on standard deductions and the computer professional exemption and exemption for physicians paid on an hourly basis also is available there.

Staff Contact: Gail Cecchettini Whaley

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Gail Cecchettini Whaley
About Gail Cecchettini Whaley
Gail Cecchettini Whaley, employment law counsel/content, joined the CalChamber in June 2011 with nearly 20 years of practice in employment law. Since joining the CalChamber staff, Whaley has been chief author of the popular HRWatchdog blog and HRCalifornia Extra e-newsletter. She is a contributor and editor for CalChamber’s various human resources compliance products, including the HRCalifornia website, and serves as a content expert. She earned a B.A. with high honors from the University of California, Berkeley, and a J.D. from the University of Southern California.