Federal Employees News Digest

Some Important Social Security Changes Resulting from 2.8 Percent COLA Effective Jan. 1, 2019

The maximum earnings subject to the Social Security (FICA) tax, the maximum amount of earnings working individuals under full retirement age (FRA) can make without losing Social Security retirement benefits, and the minimum amount of salary an individual must earn in order to earn one credit of Social Security coverage will increase effective Jan. 1, 2019. These increases result from the 2.8 percent increase in the consumer price index for workers (CPI-W) from the third quarter of 2017 through the third quarter of 2018. This column details these changes and what they mean to working Federal employees and retired annuitants.

The new 2019 amounts are presented in the table below, with 2018 amounts also presented for comparison:

 

2019

2018

Cost-of-living adjustment (COLA)

2.8%

2.0%

Earned income (salary or net self-employment) needed to earn one credit of Social Security coverage

$1,360

$1,320

Maximum earnings subject to: (1) Social Security (FICA) tax and (2) Medicare (Hospital Insurance) tax

(1)    $132,900

     (2) No Limit

(1)$128,400

     (2) No Limit

Maximum earnings and still receive full Social Security benefits:
(1) Under full retirement age (FRA) at year-end1

(2)Year FRA reached2

(3) Month FRA reached and later

 

 

(1)    $17,640

(2)    $46,920

(3)No Limit

 

 

(1)    $17,040

(2)    $45,360

(3)    No Limit

1 Individuals born between 1943 and 1954 have a FRA of age 66. During 2018, an individual born during 1952 reached FRA while during 2019 an individual born during 1953 will reach FRA.

2 Limits shown apply to earned income (salary or net self-employment earnings) that was earned prior to the month the individual becomes FRA. See below some examples of the “earnings” test for 2019.

“Earnings” Test for Social Security Recipients

Individuals who receive their Social Security retirement benefits before the month they become FRA and who have “earned” income; that is, they are earning a salary or they are self-employed and have net self-employment income – will have some of their Social Security benefits withheld. This occurs if their earned income exceeds the annual limits, as shown in the table below. Note that in the month an individual reaches FRA, any earned income at that time and thereafter has no effect on his or her Social Security retirement benefits.

The following table summarizes the two “earnings” test that Social Security recipients under FRA during all or part of 2019 and who have earned income during 2019 are subject to:

Age of Social Security Retirement Benefits Recipient

Earnings Limit for Individuals Younger than FRA and Receiving Social Security Retirement Benefits During 2019

Under FRA during all of 2019 (born in 1954, 1955, 1956 or 1957); benefits reduced $1 for each $2 earned over…………………………………………………………

 

$17,640

During year FRA reached (born during 1953); benefits reduced $1 for $3 earned over (months up to the month the individual reaches FRA)……….

 

$46,920

Month FRA is reached and later

No Limit

 

The following two examples illustrate the use of the Social Security “earnings” test during 2019.

Example 1. Jerry become age 62 on Aug. 8, 2019. He retired from Federal service under FERS on Aug. 31, 2019. Jerry has applied for Social Security and intends to get his first Social Security check in October 2019. Between Jan. 1, 2019 and Aug. 31, 2019 Jerry worked full-time and earned $102,000. Assume Jerry takes a part-time job after he retires from Federal service and earns $1,400 per month between Sept. 1, 2019 and Dec. 31, 2019. Although Jerry’s earnings for 2019 ($102,000 plus $1,400 per month for four months, $5,600, for a total of $107,600) will exceed the 2019 earnings limit of $17,640, Jerry will not lose any of his Social Security benefits between October and December 2019. This is because: (1) The $102,000 was earned before Jerry started receiving his Social Security retirement benefits; and (2) Jerry’s earned income of $1,400 per month during September, October, November and December of 2019 is less than the monthly limit of $1,470 ($17,640/12). The earnings limit is applied on a monthly basis only for the first year Social Security benefits are received. In future years until the year Jerry becomes FRA, the earnings limit applies on a yearly basis.

Example 2. Sharon becomes age 66 on Aug. 1, 2019. Sharon started receiving her Social Security retirement benefits on Jan. 1, 2019. For the period Jan. 1, 2019 through July 31, 2019, Sharon earned $65,920. During the seven month period of Jan. 1, 2019 through July 31, 2019, Sharon’s Social Security retirement benefits were reduced by $6,333.33 ($65,920 - $46,920)/3. Effective Aug. 1, 2019, Sharon can earn as much as she wants and not have any of her Social Security benefits reduced. This is because the “earnings” limit for Social Security retirement benefits no longer applies in the month an individual reaches FRA (Sharon reaches FRA on Aug. 1, 2019).

Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant and IRS Enrolled Agent in Silver Spring, MD.  Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. 

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Contributors

Edward A. Zurndorfer Certified Financial Planner
Mike Causey Columnist
Tom Fox VP for Leadership and Innovation, Partnership for Public Service
Mathew B. Tully Legal Analyst

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