This month all Social Security recipients should have received a letter notifying them of a 1.3% cost of living adjustment. This increase will take effect with the January payment. The verification letters can also be viewed on your Social Security account and www.ssa.gov.
The base premium for Medicare Part B is also increasing. The 2021 premium for Part B is $148.50 (a 2.7% increase from the $144.60 premium in 2020).
Maximum taxable earnings
The Social Security payroll tax is paid by employees and employers and funds the Social Security program. Both the wage earner and the company pay a 6.2% tax up to the maximum taxable earnings limit. For 2021 the limit has increased to $142,800 from $137,700. This means that the employee will max out with a Social Security tax of $8,853.60. Self-employed individuals pay both sides of the tax for a maximum of $17,707.20.
1959 becomes eligible
Those born in 1959 will be turning 62 this year and will be eligible for early benefits. The full retirement age for these individuals is 66 years and 10 months. This is when the individual is eligible for their full benefit (primary insurance amount). The maximum PIA for this age group is $3,262.70. However, keep in mind that if benefits are deferred, the amount increases each month after the full retirement age until 70 years old.
Limits on earnings
If an individual files for a reduced benefit before their full retirement age, there is an earnings limit. This means that if the individual earns a wage over a certain limit, their Social Security benefit will be penalized. The earnings limit for 2021 is $18,960 and the penalty is one dollar for every two dollars earned over the limit. There is also a separate earnings limit for the year that you turn your FRA up to the month. This limit is $50,250 and the penalty is one dollar for every three dollars earned over the limit.
Example: John’s full retirement age is in 2021. His birthday is in June. John can earn a maximum of $50,250 from January to June without his benefit being penalized.
Need a Social Security Analysis?
There are many things to consider before you file for your Social Security benefit. If you have questions, please reach out to us and we can discuss the most optimal strategy for your situation.