Each year there are typically updates to Social Security rules and limits, and 2019 is no exception. Below we will touch on some of these changes as well as other important rules and figures to bear in mind when planning for Social Security and Medicare taxes and income.
- The Cost of Living Adjustment (COLA) for 2019 is the largest since 2012. Based on an increase to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), beneficiaries receiving income from Social Security will receive a 2.8% increase in benefits for 2019. For many recipients (depending on their total income) this may translate to an increase in the amount received each month.
- While the Social Security tax rate has remained the same (6.2% for employees, 12.4% for self-employed), the maximum taxable earnings subject to this tax has increased to $132,900 for 2019 (was $128,400 in 2018). Medicare taxes remain the same at 1.45% for employees, 2.9% for self employed. Please note that Medicare tax rates apply to all earned income and are not subject to the maximum taxable earnings limit.
- If you are receiving Social Security benefits and are still working, your benefits may be reduced if your income is over certain limits. For individuals under full retirement age, $1 in benefits will be withheld for every $2 in earnings over $17,640/year. In the year you reach full retirement age, benefits are reduced $1 for every $3 of earnings over $46,920/year (applies only to earnings for the months before full retirement). Starting with the month an individual reaches full retirement age, there is no reduction in benefits due to earnings.
- When you turn 65 you have a 7 month period to enroll in Medicare without penalty. Your enrollment period begins 3 months prior to your birthday month, includes the month you turn 65 and ends 3 months after your birthday month. For example, if you were born in June your enrollment period would begin in February and end in September. If you do not enroll during this 7 month window, you may be subject to a late enrollment penalty which could increase premium costs monthly and is due for as long as you are enrolled in Medicare part B.
- For many Social Security recipients, their Medicare premiums are taken directly from their Social Security payments. As a reminder, the amount paid for Medicare premiums is dependent on your modified adjusted gross income (AGI + tax free income) from two years prior. For more information visit https://www.cms.gov/newsroom/fact-sheets/2019-medicare-parts-b-premiums-and-deductibles.
- The standard Medicare Part B premium will increase modestly (by $1.50 per month) to $135.50 per month in 2019 for enrollees with taxable income less than $85,000 if filing single and $170,000 if filing a joint return. For enrollees earning higher incomes, the premium increase is higher. For example, the top premium of $460.50 per month jumped more than 7% in 2019 and applies to joint filers with taxable income over $750,000 ($500,000 filing single).
While there are often annual changes to the limits and rules surrounding Social Security and Medicare, proper planning can help ensure you are not taken by surprise when costs change or deadlines approach. If you have questions surrounding these topics we encourage you to speak to a financial planner or tax professional. You can also find more information online at www.ssa.gov and www.medicare.gov.