Although Social Security has been around for a long time, this plan changes every year. In fact, sometimes it changes a lot. Here are some ways in which you can be affected by Social Security in 2021, even if you have already accumulated benefits or many more years ahead of you.
1. Adjusting for a bitter living cost
Every year, Social Security recipients are entitled to a cost-of-living adjustment or cola, which helps their rise, so to speak. The purpose of colas is to allow seniors to retain their purchasing power in the face of inflation. But in some years, colas have not been generous and, unfortunately, 2021 is one of them. In the coming year, their benefits for seniors will rise by just 1.3%. For the average user, it’s less than $ 20 a month – even lower when Medicare Part B premiums for 2021 increase.
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2. Higher pay cap for income tax
Every year, workers pay taxes on social security, so the plan can float. But there is a limit to how much tax can be levied on income that changes from year to year. Currently, workers pay Social Security tax on their first 7 137,700 income. By 2020, that threshold will rise to 2 142,800.
Self-employed workers earning $ 142,800 or more will pay 17,707.20 in Social Security taxes in 2021. President-elect Joe Biden has said he wants to re-establish Social Security taxes on incomes that exceed $ 400,000 so that the rich can pay their share. But even if that change goes through eventually, it will not take effect in early 2021, so high-income earners will not have to worry about additional taxes beyond the wage cap of $ 137,700 to $ 142,800.
3. Higher revenue test limit
Social Security seniors are allowed to work and receive benefits at the same time, but those who do so before the full retirement age risk will withhold benefits if their income exceeds the income test limit. That limit, like the pay cap for taxes, changes from year to year.
By 2021, Social Security recipients will be able to earn up to 9 18,960, without compromising their benefits. Beyond that point, $ 1 is deducted from Social Security for every $ 2 earned. Workers who reach full retirement age next year receive the highest income limit – 50,520. Beyond that, there is $ 1 in benefits withheld for every $ 3 in income. Suspended benefits are eventually reimbursed, but the reduced benefits – which are filed for benefits before full retirement age – are set for life.
Whether you rely on Social Security for your current income or plan to do so in the future, it is important to keep tabs on changes to the plan. The more you read about social security, the better you will make smart choices that will allow you to use your benefits.