Social Security Benefits Won’t Be Cut For People Turning 62 In 2022
The pandemic-related economic shutdown in 2020 triggered all sorts of anxiety, including oddly enough a fear that those who turn 62 next year would be stuck with drastic cuts to their Social Security benefits.
Sure, it was a very strange thing for a small portion of baby boomers to suddenly be alarmed about amidst the COVID-19 crisis.
But it could have happened to one group, thanks to a quirky calculation. The AARP and others published articles last year warning that the pandemic’s disruption to the economy threatened to create a serious drop in benefits for those who turned 60 in 2020.
The reason? A key wage index that Social Security uses as part of the calculation of benefits looked like it was set to plummet during the 2020 economic slowdown.
In Congressional testimony in July 2020, Social Security Administration Chief Actuary Stephen Goss suggested that benefits could be 9.1% lower for this specific group, for life.
Goss stated that a decline in the average wage index would financially harm more than 4 million retired and disabled beneficiaries who will turn 62 in 2022.
How The Social Security Tax Works
The FICA tax is calculated on the gross pay of an individual.
- The employee’s gross pay is calculated for the pay period, depending on whether they’re salaried or hourly workers.
- The gross pay amount is used to calculate withholding for federal and state income taxes based on the employee’s W-4 form.
- The gross pay amount is also used to calculate withholding for Social Security and Medicare taxes.
The total withholding for FICA taxes is 15.3% of the employee’s gross pay. The employee and the employer each contribute half.
The FICA withholding amount for an employee is 7.65% of gross income: 6.2% for Social Security and 1.45% for Medicare.
Don’t Always Believe The Headlines
Now, amazingly, there is good news for those baby boomers born in 1960. Things didn’t turn out as horrible as the original headlines suggested.
The average wage index which is calculated by Social Security to track wage growth in the overall economy didn’t fall as once projected. Instead, the Social Security Administration recently posted that the national average wage index was up 2.83% in 2020 from 2019 not down.
That’s quite a shift from an early projection that the wage index could be down 5.9% in 2020 from 2019.
“That means that there would be no reduction to benefits for people who turned age 60 in 2020, those born in 1960. This is the good news,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, a nonpartisan group dedicated to protecting seniors’ benefits.
Over the past year, Johnson has heard from terrified people who turned 61 this year.
“We were getting these really panicked emails saying ‘Are my Social Security benefits going to be cut 10%?’ ” she said.
The last thing many people edging closer to retirement want to hear is that they’re part of some cohort that is about to be cut unilaterally for something out of their control.
Things, though, worked out better than those dire projections.
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When Will I Receive My Social Security Check
The Social Security Administration’s payment calendar helps recipients plan for payments. If you were born in the first 10 days of your birth month, then you receive payments by the second Wednesday of the month. Those born on the 11-20 receive payments by the third Wednesday. Those born on the 21-31 receive payments by the fourth Wednesday. However, those who began receiving payments before May 1997 receive payments by the third day of each month.
How Do You Calculate Your Social Security Taxes
“Social Security taxes” can refer to taxes paid into the Social Security system or taxes paid on Social Security benefits. The taxes that fund Social Security come from the payroll tax, which is 6.2% for employees or 12.4% for self-employed individuals.
When you’re receiving Social Security benefits, you’ll still have to pay income taxes, but you won’t owe taxes on all of your benefits. Those whose total annual income tops $34,000 will pay income tax on 85% of their Social Security benefits. Otherwise, they will pay income tax on 50% of their Social Security benefits.
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How Is Social Security Disability Or Ssi Calculated
If you are in the process of applying for Social Security disability benefits or Supplemental Security Income , you may be wondering what your maximum monthly benefit payment is. You can quickly find this out by contacting the Social Security Administration to receive an estimate or you can visit our website for a quicker response and use the disability calculator.
The monthly benefit for SSDI is based on a complex formula, while the benefit for SSI is relatively simple. Both formulas will be described in this article, as well as some general details about financial eligibility for these programs.
It is important to mention that if you believe that you are disabled, you should get started with your application right away, because there are many factors involved in determining your eligibility that the SSA will consider.
Adjust Your Primary Insurance Amount If You Claim Benefits Before Or After Full Retirement Age
All the above calculations determine the primary insurance amount if you claim benefits at full retirement age — but you may decide to claim benefits before or after FRA. You can claim benefits as early as age 62. But if you claim benefits before FRA, your benefits are decreased by:
- 5/9 of 1% per month for each month prior to FRA for the first 36 months
- 5/12 of 1% per month for each additional month if you claim more than 36 months before FRA
If you claim benefits after FRA, benefits are increased by 2/3 of 1% for each month you wait up until age 70.
The table below shows FRA depending on your birth year:
|If You Were Born in||Your FRA Is|
Table source: Social Security Administration.
Depending when your FRA is, you’d apply the benefits reduction or increase to your primary insurance amount. For example:
- If FRA is 67 and you claim benefits at 66, that’s 12 months early. Multiply the per month-reduction *.01) times 12 months to see that benefits are reduced by around 6.7%.
- If FRA is 66 and you claim benefits at 62, that’s 48 months early. Multiply the per month-reduction for the first 36-months *.01) times 36 months + the additional reduction of *.01) times 12 months. This gives you 0.20 + 0.05, which amounts to a 25% reduction in your primary insurance amount.
- If FRA is 67 and you claim benefits at 69, that’s 24 months late. Multiply the per-month increase *.01) times 24 months to see benefits are increased by 16%.
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How To File Social Security Income On Your Federal Taxes
Once you calculate the amount of your taxable Social Security income, you will need to enter that amount on your income tax form. Luckily, this part is easy. First, find the total amount of your benefits. This will be in box 3 of your Form SSA-1099. Then, on Form 1040, you will write the total amount of your Social Security benefits on line 5a and the taxable amount on line 5b.
Note that if you are filing or amending a tax return for the 2017 tax year or earlier, you will need to file with either Form 1040-A or 1040. The 2017 1040-EZ did not allow you to report Social Security income.
Federal Exemptions For Social Security Tax
If your total income was low enough, you may not need to pay federal taxes on any of your Social Security income. To find out if any of your benefits are taxable, compare your base income to the allowance for your tax filing status. Your base income is your income from all sources — including tax-exempt interest — other than Social Security, plus half of your Social Security benefits. For example, say your income other than Social Security was $10,000 and your Social Security benefits were $8,000. Your base income would be $14,000 . Single filers, head of household filers and widowers may have up to $25,000 in base income and pay no taxes on Social Security. The limit is $32,000 for married couples filing jointly.
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Additional Medicare Taxable Income Deduction
The Internal Revenue Service notes that the Medicare portion of your FICA contribution will increase when your income reaches $200,000 during any calendar year. Your employer must deduct an additional 0.9 percent from your gross income the first pay period after this happens and every following pay period. This additional deduction brings your total Medicare contribution to 2.35 percent instead of 1.45 percent. You continue to pay this rate every pay period until you reach the end of the calendar year.
How To Calculate Your Social Security Benefits: A Step
Its important for you to have a clear understanding of the process used to calculate your Social Security benefits. If you understand this calculation, you may be able to spot mistakes and fix them before its too late.
Like anything with Social Security, the rules can seem complex at first. But once you get under the surface, they are actually pretty easy to understand. To help you, I distilled the several pages of calculation rules down into four easy-to-understand steps.
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How To Check Your Social Security Earnings History
Checking your earnings history with the Social Security Administration is easy. You can find the details in your Social Security statement.
If you dont have a recent statement, dont let that stop you. Go online and instantly print your most recent statement.
To create a My Social Security account, visit www.ssa.gov/myaccount. Youll need to provide a Social Security number, mailing address and a valid e-mail address. Youll also need to be able to answer questions that only you are likely to know and it needs to match the information on file with Social Security.
In addition to checking your earnings history, there are many other other reasons to set up your online account. You can:
- Get an estimate of your future benefits
- Get a letter with proof of your Social Security benefits
- Start or change your direct deposit
- Get a replacement SSA-1099 or SSA-1042S for taxes
- Change your address
Please, please, pleasecheck your Social Security earnings history today! And dont stop there. Urge your friends, family members and clients to do the same. Better yet, just share this article!
Ignoring this could cost you thousands of dollars in missed Social Security benefits, whereas checking your record only takes 5 minutes. Its a worthwhile use of time!
You should also consider joining the 100,000+ subscribers on myYouTube channel! For visual learners , this is where I break down the complex rules and help you figure out how to use them to your advantage.
More From Life Changes:
The annual adjustments are based on inflation. So bigger monthly checks mean that consumer prices have also gone up. Consequently, the extra cash may not go as far.
The average monthly retirement benefit will go up by $92 to $1,657 in 2022 from $1,565 in 2021.
But the size of the increase will vary by beneficiary.
“Anybody who is currently in receipt of a benefit should take a look at what their benefit is and imagine what a roughly 5.9% increase will do to that benefit level,” Stephen Goss, chief actuary at the Social Administration, said during a recent webinar hosted by the Bipartisan Policy Center.
However, there is one thing that will offset how large those checks will be: Medicare Part B premiums.
Those payments toward Medicare Part B are often deducted directly from beneficiaries’ monthly checks. However, not everyone has Medicare Part B coverage, particularly if they are still covered under an employer health plan or if they have not yet reached Medicare eligibility age, which is 65.
The standard Medicare Part B premium is projected to be $158.50 per month, up from $148.50 this year. However, the rates for next year have not been officially announced.
If you are not covered by Medicare Part B, you can multiply your monthly benefit amount by 1.059 to approximate your payment for next year, said Joe Elsasser, founder and president of Covisum, a Social Security claiming software company.
Federal Income Tax Withholding Vs Social Security Wages
The list of payments to employees that aren’t included in FICA tax can be different from the types of payments that aren’t included in income tax calculations. Some payments may be exempt from federal income tax withholding but taxable as Social Security wages.
|Income Tax Withholding||FICA Tax Withholding|
|Wages paid by a parent to a child are taxed.||Wages paid by a parent to a child are not taxed if the child is younger than age 18, or age 21 for domestic workers.|
|Payments to statutory non-employees are taxable for income tax purposes.||Payments to statutory non-employees are not subject to the FICA tax.|
|It applies to all earnings.||Social Security is taxed only on the first $137,700 in earnings annually as of 2020 and $142,800 in 2021.|
The instructions for completing Form W-2 have a list of payments that must be included for federal income tax purposes. IRS Publication 15 also includes a detailed list of payments to employees and whether they’re subject to income tax or includable in Social Security wages.
Work Longer And Claim Social Security Later
Working longer is often the first and most important step to maximize your Social Security income in retirement. Firstly, the later you claim Social Security, the larger your monthly payment will be. Secondly, working longer allows you to potentially replace years with lower incomes with your current higher income, thereby increasing your Social Security calculated benefits.
In case you were wondering, Social Security benefits are calculated based on your top 35 years of working and paying into Social Security. For those who havent worked for that amount of time, when reaching retirement age, you will see zero Social Security credit for years not worked, which can reduce your eventual retirement income from Social Security.
WASHINGTON, DC OCTOBER 14: In this photo illustration, a Social Security card sits alongside checks from the U.S. Treasury on October 14, 2021 in Washington, DC. The Social Security Administration announced recipients will receive an annual cost of living adjustment of 5.9%, the largest increase since 1982. The larger increase is aimed at helping to offset rising inflation.
3. Increase Your Income While Working
Earning more will increase the amount of Social Security you will receive in retirement. Simply put, the more money you make, the more you pay into the Social Security system the more you pay in, the more you should receive in benefits. Increased income will only help up to a certain point.
4. Delay Claiming Social Security Benefits
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Is There A Maximum Benefit
Yes, there is a limit to how much you can receive in Social Security benefits. The maximum Social Security benefit changes each year. For 2021, itâs $3,895/month for those who retire at age 70 . Multiply that by 12 to get $46,740 in maximum annual benefits. If that’s less than your anticipated annual expenses, youâll need to have additional income from your own savings to supplement it.
What Will Your Social Security Benefit Be In 2022
To find out how your benefits will compare to next year’s average, you’ll have to calculate how much income Social Security will provide to you next year.
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If you’re already getting benefits, this is easy. Seniors are on track to get a 5.9% Social Security raise next year thanks to the largest cost of living adjustment in decades. So, multiply your current benefit by 5.9%. If you’re currently receiving $1,500 and next year you get a 5.9% increase, your benefit will go up to $1,588.50. Of course, you may not get to bring all this extra money home because Medicare premiums will probably be deducted from it. But that would still be the full amount of your check once the COLA kicks in.
If you haven’t started benefits yet but are planning to in 2022, your benefit will be based on your career earnings history as well as how old you’ll be when filing for benefits. Sign in to your mySocialSecurity account, use the pull-down menu to specify the age you’ll claim benefits, and you can see exactly what your benefit will be in 2022.
Example Of Social Security Taxation:
Let’s say a single, 68-year-old retired woman, Susan, receives the average Social Security benefit, totaling $18,516 for the year.
Susan collected $30,000 from other means throughout the year, so her provisional income is $39,258 .
Then, 85% of Susan’s total Social Security benefit, $15,738, is subject to federal income tax.
Every January, the Social Security Administration sends an earnings statement to Social Security recipients Form SSA-1099 showing the amount they were paid in benefits throughout the tax year. The statement is used to fill out their federal income tax return, which will determine whether tax is owed on Social Security benefits. Some states also tax Social Security benefits.
If Social Security recipients anticipate they’ll need to pay federal taxes on their benefit and want to do it ahead of time, they can make estimated quarterly payments or elect to have federal taxes withheld either 7%, 10%, 12%, or 22% of their monthly benefit.