The Social Security Administration (SSA) announced a number of changes for 2017 that will affect high income earners in the workforce as well as those that are retired.
For those in the workforce, the maximum amount of earnings subject to the Social Security tax is climbing in 2017. In the past two years the 6.2% Social Security tax to employees has been levied on income up to a cap of $118,500 per year. Next year that cap is increasing to $127,200, an increase of 7.3% and the largest increase since the 1980’s. Social Security estimates this will effect approximately 12 million workers in the United States.
For those in retirement and already collecting Social Security, the SSA advised that the cost-of-living allowance for 2017 will be 0.3%. While certainly an improvement over last year’s 0% cost-of-living allowance, the increase is still minimal and for high income retirees may mean a larger increase in Medicare premiums for 2017.
Medicare and Social Security are linked as Medicare premiums are usually deducted from an individual’s Social Security check. Medicare cannot pass along premium increases above the cost-of-living allowance each year for those whose premiums are deducted through Social Security and those not subject to the income-related monthly adjustment amounts for Part B and Part D. The income-related monthly adjustment does not apply to individuals with $85,000 or less Modified Adjusted Gross Income or married couples with $170,000 or less Modified Adjusted Gross Income.
What this means is that the approximately 30% of beneficiaries, who exceed those income thresholds or those who are eligible for Medicare but delaying Social Security, will be burdened with the majority of the premium increases. Earlier in 2016, Medicare projected that premiums could rise by as much as 22% for next year.
Last year, Medicare beneficiaries faced a similar situation but Congress came to a budget agreement which lowered the increases. While we can keep our fingers crossed for a similar event this year, it makes sense to plan for higher premium costs for those above AGI levels of $85,000 (single) and $170,000 (joint). While individuals and couples over these AGI income thresholds may be limited to what they can do to avoid the premium increases (which will be based on 2015 tax return numbers), they can utilize the Medicare open enrollment period between now and December 7th to evaluate their current prescription drug and Medicare supplemental plans. This annual evaluation allows Medicare recipients to make sure that they are not overpaying on their premiums or paying for certain coverages that they no longer need.
If you are Medicare age and your income situation has drastically changed since 2015 or if you have any questions about how your Social Security or Medicare benefits might be affected, please do not hesitate to contact your Wealth Advisor.
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This article is based on RegentAtlantic’s current understanding of Social Security and Medicare legislation. This legislation can change at any time.