We are approaching the end of the year, and around this time, agencies that administer government programs start to release adjusted figures for the following year.
The Social Security Administration has recently unveiled their cost-of-living adjustment (COLA) and some other changes, and we will take a look at them here.
Slight Increase
There will be a 1.3 percent increase for Social Security recipients in 2021. This may seem like a minuscule bump that will not have much impact, but during some years, there is no increase at all.
This year, the average monthly Social Security benefit is $1523, and it will go up by $20 when you add the 1.3 percent COLA. In addition to the fact that this really won’t do much good, as you will see in the next section, beneficiaries may never most of see it.
Medicare Part B Premiums
The Medicare program is broken up into four distinct parts, and Part B is the portion of the program that covers services that are provided by doctors and other health care professionals.
You have to pay a monthly premium for Medicare Part B, and for individuals that claim $87,000 or less, the premium has been $144.60 this year. In 2019, most people paid $135.50 a month, so the increase was about nine dollars.
There will be another increase for 2021, but it will not be announced until early in November. This being stated, it’s safe to say that it will be somewhere in the vicinity of the nine dollars per month increase that we saw this year.
When you compare the cost of living adjustment with the increase in the Part B premiums, you essentially have a wash. However, 2021 will be a little bit different than the typical year.
The stopgap budget measure that was passed in September addresses the economic impact of the coronavirus pandemic. One provision contained within it limits the Part B increase for 2021 to 25 percent of what it would have been under ordinary economic circumstances.
There is also a “held harmless” provision that existed before this legislative measure was passed. If the increase in the Part B premium exceeds the amount of the cost of living adjustment in any given year, the beneficiary would not get a reduced benefit.
Maximum Taxable Income for Social Security Purposes
The old age, survivors, and disability insurance (OASDI) tax rate is 6.2 percent, and there is a maximum amount of income that can be taxed for this purpose. In 2020, the maximum is $137,700, and this will go up to $142,800 next year.
It should be noted that there is no maximum when it comes to the portion of your payroll or self-employment taxes that will go toward Medicare funding.
Your Social Security benefit is based on your 35 highest earning years. Since there is a maximum amount of taxable income, there is also a maximum benefit. This year, the max benefit is $3011 a month, and it will rise to $3148 in 2021.
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