Changes coming to Social Security during 2017 for both employees and beneficiaries
This week’s column discusses how the 0.3 percent cost-of-living-adjustment (COLA) to Social Security benefits effective Jan. 1, 2017 affects employees and beneficiaries. Among the effects discussed are higher-salaried employees paying more in FICA taxes, additional earnings needed to earn one Social Security credit, and a higher earnings limit for working Social Security recipients aged 62 to 66.
- By Edward A. Zurndorfer
- Jan 09, 2017
Based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of 2014 through the third quarter of 2016, Social Security beneficiaries will receive a 0.3 percent cost-of-living adjustment (COLA) for 2017. Based on estimates provided by the Social Security Administration (SSA), the 0.3 percent COLA works out to an estimated average $5 monthly benefit increase effective in Jan. 2017. Unlike what happened in January 2016, in which there was no COLA, there is a COLA for 2017. But unfortunately the amount of the COLA is the lowest on record.
In addition to the monthly benefit increase for beneficiaries, there are other Social Security-related changes taking effect in 2017 for employees. This column discusses the changes affecting beneficiaries and employees as a result of the 0.3 COLA increase. There are four major changes:
▪ Higher salaried employees will pay more in FICA taxes. Each year, the SSA sets a payroll earnings cap that dictates how much in earned income is subject to the Federal Insurance Contributions Act (FICA) tax – 12.4 percent split evenly between employer and employee. Effective Jan. 1, 2017, the maximum annual wage base increases to $127,200 from $118,500. While employees earning less than $118,500 are not affected, employees earning in excess of $118,500 will be paying more in FICA taxes during 2017. For example, if an employee earns more than $127,200 in salary during 2017, the employee will pay an additional $539.40 in FICA tax during 2017.
▪ Additional earnings needed to earn one credit of Social Security. In order to receive a Social Security retirement benefit, an individual has to accumulate at least 40 credits of Social Security. The most credits an individual can earn in one year is four. To earn one credit in 2016, an individual would had to have earned $1,260 in Social Security-covered employment. To earn the maximum four credits during 2016, the individual would had to have earned at least four times $1,260, or $5,040. In 2017, the value of one work credit is increasing by $40 to $1,300. This means that an individual needs to earn at least $5,200 during 2017 to earn the maximum four Social Security credits.
▪ Full retirement age (FRA) has begun to increase for new retirees. It has been 33 years since Congress passed legislation to alter the full retirement age (FRA), the age at which an individual becomes eligible for 100 percent of the individual’s Social Security retirement benefit. For individuals born between 1943 and 1954, the FRA has remained at age 66. Beginning in 2017, the FRA increases by two months for those born in 1955 to age 66 years and two months. This two month increase will continue with each successive year, reaching 67 years for individuals born in 1960 and later. This means that individuals who file for Social Security retirement benefits as early as possible - age 62 - will see an even larger reduction in their monthly benefit than just 25 percent.
▪ “Earnings” limits for early filers increases. Individuals who file for retirement benefits prior to the year they reach FRA are subject to having some or all of their benefits withheld by the SSA if they have too much in earned income — salary/wages or net self-employment income. In 2016, individuals ages 62 to 65 would have $1 in benefits withheld for each $2 in earned income over $15,720. Individuals becoming FRA of age 66 during 2016 would lose $1 in benefits for each $3 in earned income above $41,880 that was earned prior to the month of reaching FRA. For 2017, both of these earnings limits increase. Those individuals age 62 to 65 during 2017 can earn up to $16,920, an extra $1,200 a year or $100 a month. Similarly, those individuals reaching age 66 during 2017 can earn up to $44,880 — an increase of $3,000 or $250 a month from 2016 — until the month they become age 66 without losing any of their Social Security benefits.
Other changes taking effect in January 2017 resulting from the 0.3 percent COLA are summarized in the following table: