2027 Social Security wage base: Phase Every Client's Payroll Tax Budget by Month

The 2027 Social Security wage base is $192,300, up from $184,500, effective for wages paid from January 1, 2027. For a CPA building client budgets this quarter, the useful move is not updating one cell. It is phasing employer payroll tax by month, so the January reset and the autumn cap stop reading as variances.

Why this matters now

On 2026-10-14 the Social Security Administration announced a 3.6 percent cost-of-living adjustment for 2027 and, in the same release, set the taxable maximum at $192,300, up from $184,500 in 2026. The agency's 2027 COLA fact sheet carries the figure alongside the other indexed amounts. The Journal of Accountancy worked the arithmetic the same day, 2026-10-14: at or above the cap, employee and employer each pay $11,922.60 in Old-Age, Survivors, and Disability Insurance tax in 2027, up from $11,439. Bloomberg Tax reported the same numbers for payroll professionals.

The timing is what makes this a this-week task rather than a January one. Fourth quarter is when accounting firms build or refresh client budgets, and the wage base is the first 2027 payroll input to be published. The IRS has not yet released its 2027 inflation adjustments for income tax, and state unemployment rate notices for 2027 arrive over the next two months. The Social Security number is final, so the payroll tax line can be built now and the other lines layered in as they land.

The coverage so far tells you the number and the withholding rule: stop at the cap, start again in January. What it does not do is tell a CPA what the number does to a client's monthly profit and loss. Employer payroll tax is not a flat cost. It front-loads into the first quarter for every employee because of the unemployment wage bases, and it drops away in the autumn for anyone earning above the Social Security cap. A budget that spreads the annual total evenly produces variances in both directions that are not real, and a client who sees them learns to ignore the line. This post shows how to phase the line correctly, for every client, from one template, in about an hour for the first client and minutes for each one after.

What changed for 2027 and what did not

Three things to carry into the budget. The Social Security rate is unchanged at 6.2 percent for the employee and 6.2 percent for the employer, as the IRS states in Topic 751, last reviewed 2026-09-24. The wage base rises to $192,300, so the employer's maximum per employee rises by $483.60. And the start-over date is January 1, 2027, when every employee's cumulative wage count resets to zero, including people who stopped paying Social Security tax in September or October of 2026.

Three things did not move. Medicare tax stays at 1.45 percent each with no wage limit. The 0.9 percent Additional Medicare Tax still applies to employee wages above $200,000 and has no employer match, so it affects withholding but not the employer expense line. Federal unemployment tax, per IRS Topic 759, remains 6.0 percent on the first $7,000 of wages per employee, reduced to 0.6 percent when the full state credit applies, which is $42 per employee per year for most employers.

State unemployment is the variable. Each state sets its own wage base and assigns each employer its own rate, and 2027 rate notices typically arrive in November and December. For the budget, use the client's 2026 rate and the state's 2027 wage base if it has been published, and flag the line for replacement when the notice arrives. Keep the flag visible. A placeholder that looks final is how a budget ends up wrong for twelve months.

One accounting point before the numbers. Employer payroll tax is a period expense, a debit to payroll tax expense on the profit and loss in the month the wages are paid, with the credit to a payroll tax liability on the balance sheet until the deposit clears it. The budget compares the expense flow by month. The deposit schedule, semiweekly or monthly depending on the client's lookback period, governs the cash forecast, which is a separate document with different timing. Don't let the two blur, and don't budget the expense line from deposit history.

Build the month-by-month budget from one template

Start with a worked example. A client runs three salaried employees in 2027: an owner-manager paid $240,000 a year, a manager paid $96,000, and an associate paid $54,000, all paid monthly. Assume a state unemployment rate of 2.7 percent on a $9,000 wage base, which is illustrative only. Four employer taxes apply: Social Security at 6.2 percent up to $192,300, Medicare at 1.45 percent with no cap, federal unemployment at 0.6 percent up to $7,000, and state unemployment at 2.7 percent up to $9,000.

The owner-manager's cumulative wages reach $180,000 by the end of September and cross $192,300 in October, so October carries Social Security on $12,300 and November and December carry none. Under the 2026 base of $184,500 the October taxable amount would have been $4,500, so the whole $483.60 increase for this employee lands in October. The manager never reaches the cap. Both unemployment taxes finish in January for the owner and the manager and in February for the associate. Here is the employer tax line by month, next to a flat budget of one twelfth of the annual total.

Read the variance column. January is $866.70 over the flat budget, a 37 percent unfavorable variance, and nothing went wrong. November and December are each $1,064.80 under, a 46 percent favorable variance, and nothing went right. A reviewer who sees those lines in a budget-versus-actual report either spends time investigating them or learns to skip the payroll tax line, which is worse, because the month the line is actually wrong nobody will look.

The phased column is the budget. Building it is mechanical: for each employee and each tax, monthly pay times the rate, capped by the running cumulative wage against that tax's base. A spreadsheet with one row per employee and twelve columns per tax does it, and the same sheet serves every client once the employee list and the state assumptions are swapped. The first client takes about an hour, most of it checking the pay calendar. Each one after that takes the time needed to paste a payroll register and confirm the state rate.

Four practical rules. Use the pay date, not the pay period, because the tax applies to wages paid. For biweekly clients, 2027 has 26 pay dates on most schedules but a few Friday schedules produce 27, which changes every month's figure and the annual total. Include bonuses and commissions in the month they are paid, since a March bonus can push an executive over the cap months early and move the drop forward. And for clients whose payroll is coded by class or location, phase each class separately, because the owner's cap affects only the class the owner is coded to. The same logic carries into group budgets, which the earlier post on consolidated budget versus actuals for multi-entity businesses covers.

Load the result into the client's accounting file as twelve monthly amounts for the payroll tax expense account rather than as an annual figure divided by twelve. Most budget tools, including the one in QuickBooks Online, accept a different amount for each month per account, and that is the whole point. If the client's payroll service posts employer taxes to more than one account, split the template the same way so the comparison is account to account.

Accounting controls for the payroll tax budget

Source data: the inputs are the SSA fact sheet for the wage base, IRS Topics 751 and 759 for the rates and the federal unemployment base, the state agency's rate notice for the client, and the client's current payroll register for pay rates, pay dates, and class coding. Save a dated copy of each in the client's budget folder. Don't take the wage base from a payroll vendor's blog or a search snippet, and don't carry forward last year's state rate without a note saying it is a placeholder.

Calculation: the budget is a deterministic calculation from those inputs. For each employee and month, taxable wages for each tax equal the lesser of the month's pay and the remaining room under that tax's base, and the expense equals taxable wages times the rate. The annual total per employee must equal the sum of the twelve months, and the Social Security column must stop at exactly $11,922.60 for anyone paid above the cap. A formula cell that checks both ties catches most spreadsheet damage before it reaches the client.

Review: a second person at the firm compares the template's employee list and pay rates to the payroll register, confirms the state rate and base against the notice, and checks that the month in which each capped employee stops matches the cumulative wage math. During the year, the monthly close compares actual employer tax expense from the payroll journal to the phased budget, and any variance beyond the agreed threshold gets a one-line explanation: a new hire, a bonus, a rate notice, a correction. The reviewer also confirms that the month's debits to payroll tax expense equal the credits to the liability account, and that the liability balance at month end equals taxes accrued but not yet deposited, which is a point-in-time check separate from the flow comparison.

Decision: the engagement partner, or the client's owner, decides three things. Whether the client's budget is phased by month or left flat, with flat acceptable only when every employee sits well below every base. What variance threshold triggers an explanation. And whether the firm re-phases the budget when a state notice or a mid-year raise changes the inputs, or holds the original budget and explains the variance. Each is a policy, written once and applied to every client, which is what keeps the process repeatable when staff change.

Limits and common mistakes

State unemployment dominates the first quarter for low and mid earners, and the example's 2.7 percent on $9,000 is a placeholder. Some states set wage bases above $50,000, which pushes the drop-off into the second quarter or later, and many assign new employers a different rate from established ones. Replace the placeholder with the client's notice before the budget is final, and expect the first-quarter shape to change when you do.

The example uses monthly salaries. Biweekly and semimonthly schedules, hourly staff, overtime, and employees who start or leave during the year all change the months in which caps are reached, and the template must use the actual pay calendar rather than twelve equal slices. Employees who had another employer earlier in the year are a known trap: the new employer must start Social Security withholding from zero regardless of what the previous employer withheld, so the budget for a mid-year hire runs the full cap again.

A client who changed payroll providers during 2026 has a related problem: the new provider must know year-to-date wages or it will withhold Social Security past the cap. The post on tying out year-to-date pay when you switch payroll providers covers that check. For 2027 budgets the issue is simpler, because everyone starts from zero on January 1.

Owner compensation above the cap is a tax planning question, not a budgeting one. Above $192,300 the marginal payroll cost of salary is Medicare only, and reasonable compensation rules for S corporation owners do not change because the base moved. Keep that discussion in the tax file and keep the budget to what the payroll will actually pay.

The fact sheet also publishes retirement earnings test exempt amounts, which the Journal of Accountancy reports as $25,560 for people under full retirement age and $67,920 in the year they reach it. Those affect employees who draw benefits while working, not the employer's expense. Finally, this article covers federal law and uses an illustrative state. Spreadsheet models for budgets and payroll checks, which you can adapt for the template above, are in the FinBoard templates library.

Frequently Asked Questions

What is the 2027 Social Security wage base?

The Social Security Administration set the 2027 taxable maximum at $192,300, up from $184,500 in 2026. Employees and employers each pay 6.2 percent Old-Age, Survivors, and Disability Insurance tax on wages up to that amount, so the maximum per side rises to $11,922.60 from $11,439.

When does the new wage base take effect?

It applies to wages paid on or after January 1, 2027. Every employee's cumulative wage count starts over at zero on that date, so 6.2 percent withholding and the employer match resume in January even for people who stopped paying in 2026.

Why does employer payroll tax expense drop late in the year for high earners?

Once an employee's cumulative wages pass the wage base, the 6.2 percent Social Security tax stops for both the employee and the employer for the rest of the year. Medicare tax at 1.45 percent continues with no cap. The employer's expense for that person falls from the month the cap is reached until it resets in January.

Should I budget employer payroll tax as a flat monthly amount?

Not for clients with high earners or with state unemployment wage bases that are reached early. A flat twelfth of the annual total creates an unfavorable variance in January and a favorable one in the fourth quarter that nobody needs to explain. Phase the budget by month using each employee's pay and the applicable caps.

Does the 2027 wage base change Medicare or FUTA?

No. Medicare tax stays at 1.45 percent each for employee and employer with no wage limit, the 0.9 percent Additional Medicare Tax still applies to employee wages above $200,000 with no employer match, and FUTA remains 6.0 percent on the first $7,000 of wages, reduced to 0.6 percent when the full state credit applies.

FinBoard compares actuals to a monthly budget by account across every client and entity, with each variance drilling to the payroll journal entries underneath it, so a phased payroll tax budget is checked in the same close that produces the profit and loss. See how FinBoard handles budget versus actuals for accounting firms.