2017 Social Security Changes Announced

2017 Social Security Changes Announced

The Social Security Administration recently announced their 2017 Cost-of-Living Adjustment (COLA) changes. Here is what you need to know

2017 Social Security Changes Announced 

The Social Security Administration recently announced monthly social security and supplemental security income benefits (SSI) will increase slightly in 2017. This increase is based upon the Consumer Price Index over the past 12 months ending in September 2016. On the other hand, the potential maximum payment to Social Security goes up a whopping 7.3%. A recap of the key amounts is outlined here:

2017 Key Social Security Benefits

2017 Social Security Benefits

What does it mean for you?

  • Up to $127,200 in wages will be subject to Social Security Taxes (This is up $8,700 from 2016). This amounts to $7,886.40 (up 7.3% versus 2016) in maximum annual employee Social Security payments. Any excess amounts paid due to having multiple employers can be returned to you via a credit on your tax return.
  • For all retired workers receiving Social Security retirement benefits the estimated average monthly benefit will be $1,360/mo. in 2017.
  • SSI (Supplemental Security Income) is the standard payment for people in need. To qualify for this payment you must have little income and few resources ($2,000 if single/$3,000 if married).
  • A full-time student who is blind or disabled can still receive Supplemental Security Income (SSI) benefits as long as earned income does not exceed the monthly and annual student exclusion amounts listed above.

Social Security & Medicare Rates

After temporary payroll tax rate cuts that ended in 2012, the rates do not change from 2016 to 2017.

2017 Social Security and Medicare Rates

Note: The above tax rates are a combination of 6.20% Social Security and 1.45% for Medicare. There is also a Medicare .9% wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures. Please recall that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed individuals pay both halves of the tax.

Social Security tax problems

Beware the Tax Torpedo – Large retirement account balances can cause Social Security tax problems

A big surprise can occur when you see your Social Security Retirement Benefits being subject to income tax. This “tax torpedo” is often triggered by Retirement Account distributions. Are you prepared for this?

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2014 Social Security Benefits Announced

Social Security recently announced planned benefit increases for 2014. Now is the time to plan for these changes.

The Social Security Administration recently announced monthly social security and supplemental security income benefits (SSI) will increase in 2014 by 1.5%. This increase is based upon the Consumer Price Index over the past 12 months ending in September 2013. In addition, other figures based on the national average wage index will also be changed. A recap of the key amounts is outlined here:

2014 Key Social Security Benefits

2013 Social Security Benefits

What does it mean for you?

  • Up to $117,000 in wages will be subject to Social Security Taxes (up $3,300 or $205 in additional Social Security tax per employee and per employer)
  • The average Social Security retirement beneficiary will receive an additional $228 in 2014.
  • For all retired workers receiving Social Security retirement benefits the average monthly benefit of $1,275/mo. in 2013 will become $1,294/mo. in 2014.
  • SSI (Supplemental Security Income) is the standard payment for people in need. To qualify for this payment you must have little income and few resources ($2,000 if single/$3,000 if married).
  • A full-time student who is blind or disabled can still receive Supplemental Security Income (SSI) benefits as long as earned income does not exceed the student exclusion amounts listed above.

Social Security & Medicare Rates

After temporary payroll tax rate cuts that ended in 2012, the rates do not change from 2013 to 2014.

2013 Withholding Limits

Note: The above tax rates are a combination of 6.20% Social Security and 1.45% for Medicare. There is also a Medicare .9% wages surtax that began in 2013 for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures. Please recall that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed individuals pay both halves of the tax.

Review Your Social Security Earnings Report

You are the only one that can confirm the accuracy of your Social Security earnings record. Without timely correction of any errors, you may be short-changing yourself when benefit checks start. Thankfully SSA’s on-line tools make it easier than ever to check your statement.

Most of us go through life without being concerned with, or ever checking on, our Social Security records. We assume the money deducted each payday and an equal amount paid in by our employer is applied properly to this valuable retirement benefit.

The Social Security Administration receives a vast amount of paperwork each year. They can and do make errors and omissions. It is up to each of us to follow up and make sure our work history is being credited properly. Waiting until retirement may be too late to correct an error made 10 to 20 years back.

It is to your advantage to review your Social Security statements each year. Thankfully, it is now easier to do so as the Social Security Administration has an online tool that allows you to review your historic earnings statements online at www.ssa.gov.

The online signup process includes many safety measures to ensure your identity is protected.

The online tools also estimate your potential benefit using your current wages. If you see an error on your statement you should immediately correct it. You can do this by contacting the Social Security Administration:

Telephone: 1.800.772.1213
By mail: Social Security Administration Office of Earnings Operations PO Box 33026 Baltimore, MD 21290-3026

Caution: The law sets a time limit of 3 years, 3 months, and 15 days after the year your wages are paid or that self-employment income was earned to report earnings. This limit is especially important to note if you are self-employed or have not filed a tax return. The best protection? Conduct an annual review of your earnings report and make timely corrections.

Tax Surprises for Newly Retired – 5 surprises to know about

Rebalancing your portfolio when you get older makes sense. So does anticipating for these possible tax surprises during your retirement years.

You’ve got it all planned out. Your retirement savings plans are full, you have started receiving Social Security benefits, and your Pension is ready to go. Everything is planned, what could go wrong? Here are five surprises that can turn your plan on a dime.

1. Health emergency and Long-term Care. When a simple procedure could cost thousands, health care costs can put a huge dent in your plan. Long-term care can cost thousands per month. Have you planned for this? If your health insurance is not adequate you may need to pull money out of your retirement plan to pay the bills. While this withdrawal may not be subject to a penalty, it might be subject to income tax if the funds are from a pre-tax account.

Tip: Look into creative ways to enhance your health insurance coverage including supplemental health insurance and prescription drug cost coverage. Consider long-term care insurance and other alternative ways to reduce your potential living needs.

2. Taxability of Social Security benefits. If you have excess earnings, your Social Security benefits could be reduced. Even worse, if you are still working, your benefits could be subject to income tax.

Tip: If this impacts you, consider conducting a tax planning session to better understand your options including the possibility of delaying the receipt of Social Security benefits.

3. Your pension plan. Understand if your pension is in good financial health. Often pensions will offer a lump-sum payout option for you. Should you take it?

Tip: Review your pension plan’s annual statement. How solid is it? If there are risks, consider cash out alternatives and planning for the potential drop in future income.

4. Minimum Required Distribution (RMD). Forgot to take your minimum required distribution from your retirement plans this year? The tax bite could be quite a surprise as the penalty on the amount not withdrawn is 50%!

Tip: Select a memorable date (like your birthday) to review your RMD and take action so this tax surprise does not impact you.

5. Future Tax Rates. The federal government is spending over $1 trillion more than it brings in each year. Cash starved states are looking for new tax revenue. Don’t be surprised when future tax rates continue to rise during your retirement.

Tips:

  • Create a retirement plan with higher state and federal tax rates
  • Plan for increases in health care costs through Medicare
  • Plan for more tax on Social Security benefits
  • Plan for higher capital gain and dividend taxes (now 20% versus 15%)

Are My Social Security Benefits Taxable? – Don’t be surprised at tax time

The taxability of Social Security Benefits can be confusing. In fact the taxable nature of your benefits should include a discussion of benefit reductions when you decide to receive these benefits prior to your full retirement age. Here is what you need to know.

When it comes to retirement many Americans believe they can count on their full Social Security benefits as a core element of income. You can imagine the surprise at tax-time when some of these same benefits are returned to the Federal Government in the form of benefit reduction and taxation. Here is what you need to know.

  1. Social Security and Retirement Benefits can be “REDUCED” as well as taxed. The benefit reduction calculation is separate from the taxability of your benefits. If you start drawing retirement benefits prior to reaching your full retirement age (65 if born prior to 1938, and it gradually increases up to age 67 if born in 1960 or later) in 2013 your benefits could be reduced $1 for every $2 of earnings over $15,120. This calculation is less punitive if it occurs during the year of retirement, but you should forecast this potential benefit reduction prior to deciding to start taking your benefits.
  2. If you do not work, your Social Security benefit will probably not be subject to tax.
  3. Your Social Security Benefits can be taxed no matter how old you are. There is not an age threshold that protects your Social Security Benefits from federal taxation. If you have excess income, your benefits could be taxed.
  4. If you have other income your Social Security benefits may be taxed. The taxability of Social Security benefits depends on two things; your qualified total income and your marital status. If your total income surpasses certain thresholds (called base amount), some of your benefits could be taxed.
  5. Can you estimate whether your benefits will be taxed? Yes. Per the IRS, here is a quick calculation to determine if your benefits may be taxable:

    1st: Calculate 1/2 of your annual Social Security benefit

    2nd: Add the 1/2 benefit total to all your other estimated income. (Use income from all sources including tax exempt interest.)

    3rd: Compare your calculated total to the base amount for the year. If it exceeds the base amount, some of your Social Security benefit will be taxed.

    2013 Social Security Base Amounts:

    $25,000: Single, Head of Household, Widow or Married Filing Separately:

    $32,000: Married filing Joint

  6. Are all your Social Security benefits taxable? No, a maximum of 85% of your Social Security benefits is subject to federal tax.

Note: To qualify as married filing separately, you must also be living apart for the entire year. The base amount if you lived together is $0. There is also a significant marriage penalty in the taxability of your Social Security benefits as the joint amount is only $32,000 instead of $50,000 (or 2 times the single “base” amount).