Wednesday, November 11, 2020

What you need to know about Social Security for 2021

In one of the smallest annual cost-of-living adjustments on record, Social Security benefits will increase by 1.3% in 2021, boosting average benefits by $20 per month to $1,553 and increasing the maximum benefit for someone retiring at full retirement age in 2021 to $3,148 compared to this year’s maximum of $3,011 per month.

The standard Medicare Part B premium, which covers doctor’s visits and other outpatient services, will increase to $148.50 per month in 2021, up $3.90 from this year’s monthly premium of $144.60.

Of course, it's not just Part B premiums that are rising. The annual deductible for Part B is also going up from $198 in 2020 to $203 in 2021. And the Part A deductible per hospital benefit period is increasing, too, from $1,408 to $1,484 -- a $76 jump.

Higher-income Medicare beneficiaries will pay more. In 2021, individuals with modified adjusted gross income of $88,000 or more and married couples with MAGIs of $176,000 or more will pay additional surcharges ranging from $59.40 per month to $356.40 per month on top of the standard Part B premium. Married couples where both spouses are enrolled in Medicare will pay twice as much.

High-income surcharges for 2021, officially known as income-related monthly adjustment amounts or IRMAA, are based on income reported on 2019 federal tax returns. Income brackets that trigger IRMAA surcharges will increase slightly in 2021 as a result of inflation adjustments.

The $3.90 increase in the monthly Part B premium for 2021 is much less than had been expected earlier this year when Medicare spending soared due to the COVID-19 pandemic. But Congress stepped in with emergency spending legislation to offset a rise in the premium that CMS actuaries projected could have been as much as $50 per month for some beneficiaries in 2021.

High-income retirees are also subject to monthly surcharges on their Medicare prescription drug plans, ranging from an extra $12.30 per month per person to an extra $77.10 per month per person on top of their monthly premium. Medicare drug plans are run by private insurers and costs vary widely.

Earnings limit increase

Individuals who claim Social Security before full retirement age and who continue to work can earn up to $18,960 in 2021 without forfeiting any benefits, up from $18,240 this year. If they earn more than that limit, they will temporarily lose $1 in benefits for every $2 earned over $18,960. Benefits lost to excess earnings are restored in the form of larger monthly payments beginning at full retirement age.

Full retirement age increases to 66 and 2 months in 2021. Workers who were born in 1955 and who will attain their full retirement age next year can earn up to $50,520 in the months before they reach that milestone. If they earn more than $50,520, they will forfeit $1 in benefits for every $3 earned over that limit. Earnings restrictions disappear at full retirement age.

Payroll taxes rise

In 2021, workers and their employers will each pay 7.65% of the first $142,800 of gross pay to FICA taxes that fund Social Security and Medicare, up from $137,700 this year. That means up to $5,100 of additional income will be subject to payroll taxes next year and some higher-income workers will an extra $390 in taxes.

The 1.45% portion that funds the Medicare hospital insurance trust fund applies to all earnings, even those above the $142,800 taxable wage base in 2021. In addition, individuals with earned income over $200,000 and married couples with earned income over $250,000 pay an additional 0.9% of payroll in Medicare taxes.

Self-employed individuals pay both the employer and employee share of the payroll tax. The 15.3% self-employment rate consists of two parts: 12.4% for Social Security and 2.9% for Medicare. In 2021, the combined rate is applied to the first $142,800 income and the 2.9% Medicare portion applies to all income. Self-employed individuals can deduct the employer portion of their payroll taxes to calculate their adjusted gross income for income tax purposes.

No comments:

Post a Comment

Thanks for the comment. Will get back to you as soon as convenient, if necessary.

Top Five Consumer Cyber Security FAQs

By Equifax Business, technology, environmental and economic changes are a part of life, and they are coming faster all the time. All of thes...