2019 Social Security Update: From COLAs to Tax Calculations Be Cautious and Careful
November is here and that means the Social Security Administration has announced its changes to one of the most important social programs in America. Here’s what you need to know now about Social Security changes ahead for 2019, either for yourself, your spouse or a senior parent!
- Wages subject to Social Security FICA rise to $132,900 from $128,400. You may see a decrease in your net take-home pay if you don’t get an annual raise that makes up for the payroll tax’s bigger bite. For self-employed workers the new earnings cap represents an increase of up to $558 in added annual tax. For those employed by someone else, it’s up to a $279 annual increase, because employers pay the other half.
- Monthly Social Security income benefits for more than 61 million people in the U.S. will increase by 2.8% in January 2019, the biggest jump in seven years. That means an extra $39 per month for the average retired worker and $67 more for a couple receiving benefits. The Social Security Administration cost-of-living adjustment (COLA) is reflected as:
a. The maximum Social Security benefit for workers retiring at full retirement age in 2019 will increase to $2,861 per month, up from $2,778. That’s an increase of $73 a month or $876 a year.
b. The average Social Security benefit will rise to $1,461 per month, up from $1,422 this year.
b. The average Social Security benefit will rise to $1,461 per month, up from $1,422 this year.
3. There are pension considerations to keep in mind. If your employer sponsors defined benefit pension plans that are coordinated with Social Security, there will be an impact on benefits earned and payable under such plans. For example, a pension formula may provide for 50% of an employee’s final average pay minus 50% of the employee’s Social Security benefit. Other formulas provide different levels of benefits based on pay above or below a threshold like the Social Security taxable wage base.
4. Be mindful of the Income Limits for Benefits Earnings Test. The 2019 Social Security cost-of-living adjustment affects the dollar amount that people who claim Social Security benefits before full retirement age (FRA) can earn before a temporary reduction in benefits. The reduction in benefits applies only to the years you are working. It has no permanent effect on the amount of benefits you’ll receive in future years. Withheld Social Security benefits aren’t lost. They’re returned in the form of a higher monthly payout once you reach your FRA. There is no earnings test after workers reach full retirement age.
4. Be mindful of the Income Limits for Benefits Earnings Test. The 2019 Social Security cost-of-living adjustment affects the dollar amount that people who claim Social Security benefits before full retirement age (FRA) can earn before a temporary reduction in benefits. The reduction in benefits applies only to the years you are working. It has no permanent effect on the amount of benefits you’ll receive in future years. Withheld Social Security benefits aren’t lost. They’re returned in the form of a higher monthly payout once you reach your FRA. There is no earnings test after workers reach full retirement age.
a. The earnings limit for those who claim Social Security benefits before age 66 (born in 1943 through 1954) will increase to $17,640 in 2019, up from $17,040 this year. Social Security will withhold $1 in benefits for every $2 in earnings above the limit for workers receiving benefits before their full retirement age.
b. The earnings limit for people turning 66 in 2019 will increase from $45,360 to $46,920. Social Security will withhold $1 from benefits for each $3 earned over that limit until the month the worker turns 66.
b. The earnings limit for people turning 66 in 2019 will increase from $45,360 to $46,920. Social Security will withhold $1 from benefits for each $3 earned over that limit until the month the worker turns 66.
5. Your benefits may be taxable. Make more than a certain amount of income, and a portion of your benefits can become taxable. In order to determine whether you’ll owe any tax, take your total income from sources other than Social Security and add in one-half of the benefits you’ve received from Social Security over the course of the year. Use that total amount to see whether your countable income is above the threshold amounts below:
a. Single, Head of Household, Qualifying Widow(er), $25,000 = 50% Taxation Threshold on Social Security, or if $34,000 = 85% Taxation Threshold on Social Security
b. Married Filing Jointly, $32,000 = 50% Taxation Threshold on Social Security, or if $44,000 = 85% Taxation Threshold on Social Security
Depending on your filing status as noted above, if your income as an individual or couple exceeds either the $25,000/$32,000 threshold respectively, then up to half of your Social Security benefits get added to your taxable income for IRS purposes. Rise above the $34,000/$44,000 figure, and that figure for including benefits in taxable income rises to a maximum of 85%! The point is, be careful about taking withdrawals from tax-favored retirement accounts that may put you over the thresholds.
6. The full retirement age (FRA) rises again. For those folks born in 1957 who will be turning 62 (earliest age of eligibility for benefits) in 2019, the full FRA will climb by two months, to 66 years and six months. For those born in 1960 or later, it peaks at age 67 in 2022. Understand that if you claim benefits prior to hitting your FRA, you’ll be accepting a permanent reduction to your monthly payout. On the other hand, if you wait until after your FRA to begin taking your payout, you actually can earn more than 100%.
Contact Us: Social Security is anything but an entitlement program and only one source of your retirement income. You worked hard to earn your benefits, save money over the years, invest, and acquire assets as well as financial stability. There is no room for surprises. Let us review the tax-efficiency of your nest egg, and help you plan to make the most of what you have, so you can enjoy the retirement you always dreamed of. Contact our tax specialists and financial advisors for an appointment, toll free at 855-534-2727.
