Democrats Hope To Bring A Bill That Seeks To Protect Future Social Security Benefits To The House Floor By Springtime
Several significant changes are coming to Social Security in 2022. Here’s what you need to know.
There are several significant changes affecting Social Security in 2022, some of which include a change to the full retirement age and an increase in benefits.
Social Security pays retirees a supplemental security income based on Americans’ lifetime income, as it’s meant to pay at a rate of about 40% of past earnings. It also provides life insurance and disability insurance.
According to the Social Security Administration , nearly 70 million Americans received benefits in 2020. The SSA noted that as of December of that year, the average monthly benefit for retired women was $1,378 and $1,714 for retired men.
Keep reading to learn about some new Social Security changes in 2022, as well as what else might be on the horizon for Social Security recipients.
Look At The Big Picture
Next-year’s Social Security COLA may get all the press once that information becomes available. But don’t gloss over the other changes the Social Security Administration will be announcing simultaneously, as those, too, could have a big impact.
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How About Prescription Drug Costs Under Medicare They Eat Into Social Security Benefits
Most seniors prescription drugs are covered through Medicare Part D, and that program has not had a cap on the amounts that beneficiaries must pay out of pocket after deductibles are met. That can be a hardship for older people with very high drug costs. In 2020, 1.4 million Part D enrollees spent $2,000 or more out of pocket on drugs, according to the Kaiser Family Foundation.
The climate and health care bill that President Biden signed into law in August aims to start curbing those costs with a series of changes that will start phasing in next year.
In 2023, the Inflation Reduction Act curbs the soaring cost of insulin with a $35 monthly cap for Medicare enrollees. Also starting next year, drug makers will pay penalties for any price increase on a drug that exceeds the rate of general inflation.
The legislation takes a two-stage approach to capping total out-of-pocket costs. In 2024, Medicares requirement that enrollees pay 5 percent coinsurance above the Part D catastrophic threshold will be eliminated. That will provide important relief to retirees who now pay 5 percent of the cost of very expensive drugs for conditions such as cancer, diabetes, rheumatoid arthritis and atrial fibrillation. And starting in 2025, a $2,000 total out-of-pocket cap takes effect.
The large COLA will push some retirees over income thresholds that require them to pay income taxes on part of their Social Security benefit.
Reducing Benefits For High Earners
- Democrats in support: 86%
- Republicans in support: 78%
Wealthier retirees generally receive more generous benefits, even though they likely have more ways to fund their retirements, such as through pensions and savings. Means testing benefits for those with certain wealth or income could be another way to help reduce the program’s shortfall.
This would reduce the amount of benefits the top 20% of earners receive, and would reduce the shortfall by 11%.
Tax On Wages And Self
Benefits are funded by taxes imposed on wages of employees and self-employed persons. As explained below, in the case of employment, the employer and employee are each responsible for one half of the Social Security tax, with the employee’s half being withheld from the employee’s pay check. In the case of self-employed persons , the self-employed person is responsible for the entire amount of Social Security tax.
The portion of taxes collected from the employee for Social Security are referred to as “trust fund taxes” and the employer is required to remit them to the government. These taxes take priority over everything, and represent the only debts of a corporation or LLC that can impose personal liability upon its officers or managers. A sole proprietor and officers of a corporation and managers of an LLC can be held personally liable for non-payment of the income tax and social security taxes whether or not actually collected from the employee.
A separate payroll tax of 1.45% of an employee’s income is paid directly by the employer, and an additional 1.45% deducted from the employee’s paycheck, yielding a total tax rate of 2.90%. There is no maximum limit on this portion of the tax. This portion of the tax is used to fund the Medicare program, which is primarily responsible for providing health benefits to retirees.
The Social Security tax rates from 19372010 can be accessed on the Social Security Administration‘s website.
Wages not subject to tax
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Report The Death Of A Social Security Or Medicare Beneficiary
You must report the death of a family member receiving Social Security or Medicare benefits. The Social Security Administration processes death reports for both. Find out how you can report a death and how to cancel benefit payments. In addition to canceling SSA and Medicare benefits, find out what other benefits and accounts you should cancel.
Social Security Allows For Cost Of Living Adjustments
A steady improvement of Social Security continued throughout the 1960s and early 1970s, Altman said. In 1972, the program enacted automatic annual adjustments so benefits wouldnt erode under inflation and increasing standards of living.
Those automatic annual adjustments, also known as indexing, were directly tied to any rise in the cost of living. Each January, benefits were to be increased automatically if inflation as measured by the Consumer Price Index rose 3 percent or more from the previous benefits increase.
Benefits For Your Spouse Or Common
If you are eligible to receive the Guaranteed Income Supplement, your spouse or common-law partner may be able to receive the Allowance if your spouse or common-law partner:
- is 60 to 64 years of age
- is a Canadian citizen or a legal resident
- resides in Canada and has resided in Canada for at least 10 years since the age of 18
Retirees Could Get Extra $1800 A Year
On average, a retiree could see an extra $150 a month if there’s a 9% cost of living adjustment to Social Security for next year based on an example for current benefits of $1,656 a month. A cost-of-living adjustment in this example would be an additional $1,800 a year.
We must wait until October for the official cost-of-living adjustment.
“This will be one of the highest COLAs ever paid in the history of the program,” predicted Mary Johnson, a Social Security policy analyst for The Senior Citizens League, a nonprofit group.
Based on consumer price index data for the year through July, the COLA adjustment could be around 9.6% if inflation continues at a similar pace.
If inflation heats up, that adjustment could jump to around 10.1%, according to estimates from the Senior Citizens League.
If inflation cools, the adjustment could end up in the 8% to 9% range, according to estimates.
Only two months of consumer price data August and September are left to go for the adjustment to be calculated. September data will be announced Oct. 13 by the U.S. Bureau of Labor Statistics.
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Whether You Know It Or Not These Changes Will Affect Your Benefits
We’ve made it to 2022, and Social Security is still with us. Contrary to popular belief, it’s not going to disappear anytime soon, but that doesn’t mean everything is exactly the same as it used to be.
The government’s made some important changes to Social Security for 2022. Here are four that you should be aware of whether you’re already claiming, plan to sign up this year, or are still working.
Image source: Getty Images.
You’ll Get Larger Social Security Checks If You’re Already Claiming
The 2022 Social Security cost of living adjustment is one of the largest in recent years. Checks will grow by 5.9%. That’s an extra $92 per month for seniors who qualified for the average $1,564 monthly benefit in 2021.
Although that sounds like a good thing, that extra money may not go as far as you’d hope. The reason the COLA is so large this year is because inflation is high. So that extra $92 will probably go toward helping you cover the increased costs on your everyday items.
These changes may not all affect you, but they’re important to keep in mind anyway. Understanding how the government can alter the Social Security program will give you a better idea of what to expect when you sign up, whether that’s tomorrow or in 10 years.
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Would Those Changes Fix The Program’s Funding Shortfall
Expanding the payroll tax would boost the Social Security Administration’s trust fund, ensuring its solvency through 2096, according to DeFazio.
Whether this bill moves forward or not, boosting payroll taxes in some fashion is viewed as a way to guarantee that current and future retirees don’t lose benefits after 2035.
For instance, the Congressional Research Service said in a 2021 report that “raising or eliminating the cap on wages that are subject to taxes could reduce the long-range deficit in the Social Security trust funds.”
Earnings Limits For Recipients Were Increased
If you work while collecting Social Security benefits, then all or part of your benefits may be temporarily withheld, depending on how much you earn. However, those income limits have increased slightly for 2022.
Prior to reaching full retirement age, you will be able to earn up to $19,560 in 2022. After that, $1 will be deducted from your payment for every $2 that exceeds the limit. The 2022 annual limit represents a $600 increase over the 2021 limit of $18,960.
If you reach full retirement age in 2022, then you will be able to earn $51,960, up $1,440 from the 2021 annual limit of $50,520. For every $3 you earn over the limit, your Social Security benefits will be reduced by $1, but that will only apply to money earned in the months prior to hitting full retirement age. Once you reach full retirement age, no benefits will be withheld if you continue working.
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Social Security And Medicare Benefit Changes For 2022 And Beyond
Impactful changes Social Security filers face in 2022 and beyond.
As we kickoff 2022, there are some changes related to Social Security and Medicare that you need to know along with some insight into the future.
Here are some highlights of the most impactful changes Social Security filers face in 2022 and beyond:
- If you are already receiving Social Security benefits, you will receive a 5.9% COLA increase to your monthly Social Security benefit. This nice increase will be somewhat offset by the increase in Part B premiums
- To earn the maximum of four credits in 2022, you need to earn $6,040 or $1,510 per quarter
- Maximum taxable wage base is $147,000
- If you turn 62 in 2022, your full retirement age changes to 67
- If you turn 62 in 2022 and claim benefits, your monthly benefit will be reduced by 30% of your full retirement age benefit
- If you choose to work before you reach full retirement age, and you are collecting benefits, the annual earnings limitation is $19,560. In the year you reach full retirement age, that threshold is $51,960 in 2022. At full retirement age, this limitation goes away!
- The maximum Windfall Elimination Provision deduction for 2022 is $512
- If you are signing up for Social Security in 2022, be mindful that additional planning may be needed if you have an HSA
Here are some highlights of the most impactful changes to Medicare in 2022:
Ways Social Security Has Drastically Changed Since Its Inception
12 Ways Social Security Has Drastically Changed Since Its Inception
Social Security was created in 1935 to provide economic security for Americas working citizens. Four years later, the program was expanded to protect not only workers, but their dependents and survivors.
From that moment on, Americans began to view a retirement pension as a right, not a luxury. And politicians struggled to work out the programs shape and its funding.
Since then, Social Security has undergone big changes, with more likely to come. To understand Social Security benefits past, present and future read on to see how the program has evolved over the years.
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A Weekly Roundup Of Pay And Benefits News
The House Ways and Means Committee on Tuesday advanced legislation taking aim at two controversial Social Security provisions affecting federal employees and other public servants, although its shape could change before it is passed out of the House.
The committee by voice vote advanced the Social Security Fairness Act , introduced by Reps. Rodney Davis, R-Ill., and Abigail Spanberger, D-Va., without positively recommending its passage. The bill would repeal two controversial provisions of Social Security: the windfall elimination provision and the government pension offset, two pieces of the retirement program that impact federal employees and other government workers.
The windfall elimination provision reduces the Social Security benefits of retired federal, state and local government employees who worked in private sector jobs in addition to a government position where Social Security is not intended as an element of their retirement income, like the Civil Service Retirement System. And the government pension offset reduces spousal and survivor Social Security benefits in families with retired government workers.
We are close, but there are still some hurdles to resolve, Brady said. Theres no agreement yet, and we know the clock is ticking.
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Fact #: Social Security Is Particularly Important For People Of Color
Social Security is a particularly important source of income for groups with low earnings and less opportunity to save and earn pensions, including Black and Latino workers and their families, who face higher poverty rates during their working lives and in old age. The poverty rate among Black and Latino older adults is roughly 2.5 times as high as for white seniors. There is a significant racial retirement wealth gap, leading older adults of color to face more retirement insecurity than their white counterparts. Black and Latino workers are less likely to be offered workplace retirement plans, and they are likelier to work in low-wage jobs with little margin for savings. Social Security helps reduce the economic disparities between older white adults and older adults of color.
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The Rich Are Going To Have To Open Their Wallets A Bit Wider
The second significant change to Social Security in 2023 is one that’ll affect about 6% of the labor force.
Although Social Security generates income from three sources, the lion’s share of the program’s revenue comes from the payroll tax on earned income. By “earned income,” I’m talking about wages and salaries, but not investment income. Social Security’s payroll tax works out to 12.4% for the self-employed. Meanwhile, if you work for a business or someone else, you and your employer split the payroll tax down the middle .
In 2022, earned income between $0.01 and $147,000 is subject to this payroll tax. Approximately 94% of working Americans earn less than the maximum taxable earnings cap , and therefore pay into Social Security on every dollar they earn. By comparison, about 6% of workers will bring home more than $147,000 this year. Every dollar earned above $147,000 is exempt from the payroll tax.
However, the maximum taxable earnings cap is governed by the National Average Wage Index . With workers enjoying more wage power than they’ve had in a long time, the NAWI appears certain to rise on a year-over-year basis. This means high-earning workers can expect the maximum taxable earnings cap to increase in 2023. In short, the well-to-do will have to open their wallets a bit wider for Social Security in the upcoming year.
How To Receive Federal Benefits
To begin receiving your federal benefits, like Social Security or veterans benefits, you must sign up for electronic payments with direct deposit.
If You Have a Bank or Credit Union Account:
- Call the Go Direct Helpline at .
If You Don’t have a Bank or Credit Union Account:
- Direct Express debit card – a pre-paid debit card. Get help by calling the Go Direct Helpline at .
Make Changes to an Existing Direct Deposit Account:
On Go Direct’s FAQ page, learn how to make changes to an existing direct deposit account. You also may contact the federal agency that pays your benefit for help with your enrollment.
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