November 9, 2020
There are important updates to Social Security and Medicare on the way – some good, some bad. Here’s a quick breakdown of what’s changing.
In welcome news, Social Security checks will rise 1.3 percent in 2021. The cost of living adjustment (COLA) will appear in January’s checks.
Medicare premiums will be announced this month, and for most people, the 1.3-percent COLA should cover the rise in the Part B premium. If the Part B premium goes up to $153.30 as projected in the 2020 Medicare trustees report, the $8.70 increase over the 2020 Part B premium ($144.60) will absorb part of the COLA.
So, there likely won’t be a hold-harmless situation this year. But if you have a higher income, you could still see your net Social Security check go down if the new income-related monthly adjustment amount on the Part B premium exceeds the COLA.
Another change is the maximum taxable earnings subject to Social Security-related taxes. The Social Security portion of the payroll tax was capped at $137,700 of income in 2020. In 2021 it jumps to $142,800. That means employees and employers will each pay $8,853.60.
Self-employed folks pay both tabs, totaling $17,707.20. And as always, the Medicare tax of 1.45 percent each will be assessed, regardless of income.
We also have a new earnings test.
If you take Social Security before full retirement age, you can only earn so much income per year. In 2020 it was $18,240. The new test threshold is $18,960. The income limit in the year Social Security beneficiaries reach full retirement age was $48,600, but it’s going to be raised to $50,520. If your earnings exceed these thresholds, $1 in benefits is withheld for every $2 earned over the cap.
Social Security and Medicare are vital programs for millions of Americans, but the rules change, and it can be confusing. So, if you need help figuring things out, make the smart choice and consult professionals.