4 Biggest Changes to Social Security in 2020
Currently, nearly 69 million Americans collect benefits either in the form of Social Security or Supplemental Security Income benefits. This year, a number of changes have been made that will affect the various benefits that Social Security offers. In this article, the Long Beach Social Security Attorneys at Cantrell Green discuss these changes and how they may impact you and your benefits.
Cost of Living Increase to Social Security
The first change you may notice this year is a small increase in your monthly check. The increase is due to a 1.6% cost-of-living adjustment (COLA) that took effect on Dec. 31.
Essentially, a retired worker’s average monthly benefit will rise from $1,479 to $1,503 per month. Couples who both receive benefits will see an increase from $2,491 to $2,531.
Change in Earnings Subject to Social Security Tax
Employees pay 6.2% of anything they earn up to the taxable maximum amount into Social Security, plus 1.45% into Medicare. Employers match these percentages (also up to the taxable maximum) for a total of 15.3%. Individuals who are self-employed are responsible to pay the entire 15.3% of their earnings in federal payroll taxes pursuant to the Federal Insurance Contributions Act, or FICA.
In 2020, the maximum amount of earnings subject to the Social Security tax will be increased. The amount in 2020 is $137,700, as opposed to $132,900 in 2019. While this increase only affects 11.8 million of the approximate 171 million of those covered under Social Security, it may come as an unwelcome surprise to the approximate 7% of workers who will now need to pay an additional $298 of their wages into Social Security over what they had paid in 2019.
Change in Social Security & Earnings Limit
Your “full retirement age” is the age when you become eligible to receive full or unreduced retirement Social Security benefits. The full retirement age is 66 for people born between 1943 and 1954. If you were born in 1955 or later, two months are added for every birth year until the full retirement age reaches 67.
If you have questions about what your full retirement age might be, the Social Security Administration provides comprehensive information on their website, at https://www.ssa.gov/planners/retire/agereduction.html.
It is important to know your full retirement age, because if you’re working, receiving Social Security benefits, and you’re younger than full retirement age, your earnings may reduce your benefit amount. For example, in 2020, the SSA will deduct $1 from benefits for each $2 earned over $18,240.
The earnings limit for people turning 66 in 2020 has been raised to $48,600. The Social Security Administration will then deduct $1 from benefits for each $3 earned above the $48,600 amount up until the month the employee reaches the age of 66.
The good news is that there is no limit on earnings for workers who have reached or exceeded full retirement age for the entire year.
Taxes on Social Security
It may be a surprise to you that by law, income tax thresholds for Social Security are not adjusted for inflation. In fact, the thresholds have not been adjusted by Congress since 1993, over 25 years ago. Currently, according to the Social Security Administration, just over half of Americans (56%) pay taxes on their Social Security benefits. And because the threshold is not adjusted for inflation, that percentage is likely to increase.
Here’s how it works. Someone whose combined income is between $25,000 and $34,000 can expect that up to 50% of his or her Social Security benefits may be considered taxable income. If the income exceeds $34,000, the percentage increases up to 85%.
For those filing joint returns who have a combined income between $32,000 and $44,000, up to 50% of benefits may be taxable. And if their income exceeds $44,000, the percentage increases to 85%.
The mere fact that Social Security income tax thresholds have not changed in over 25 years and continue to operate under the radar in effect constitutes a ‘covert tax’ that often brings a large and unwelcome surprise to beneficiaries who are collecting Social Security benefits.
Social Security attorneys at Cantrell Green know that their clients rely on the benefits received through the Social Security system. Changes to the system not only have a financial impact, but also can cause insecurity and confusion amongst those relying on those benefits. That’s why we spend considerable time reviewing and researching what is going on in Social Security, and even more, what is likely to happen in the future. If you live in the Long Beach area and have questions about your Social Security benefits, give our office a call to schedule a consultation. We are glad to put our expertise to work for you.
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