A new year can prompt new changes for Social Security and their applicants. Multiple sources are claiming that there will be 3 major changes for the program. Since the changes that are only proposed, there is no guarantee they will go into effect in 2021. In addition to the 3 major changes, it is possible that other changes and statues can occur as well. In 2021, it is important to stay informed about Social Security and any new adjustments that they may make. The 3 major potential changes are listed and described below.
There will be a 1.3% cost-of-living adjustment.
Beginning in January, the annual cost-of-living adjustment (COLA) will be set at 1.3 percent. Social Security states that cost-of-living adjustments allow Social Security and Supplemental Security Income (SSI) benefits to keep pace with inflation. The Social Security Administration determines a formula to calculate COLAs. According to AARP, the monthly Social Security benefits will increase by $20 for the majority of retired workers. As a result, the average annual benefit will be approximately $1,543. Previously, the annual amount was estimated to be $1,523 in 2020. In addition, retired couples and disabled workers will also receive an increase in COLA. Retired couples can potentially receive an increase of $33, and disabled workers can receive an increase of $16. Overall, the greatest monthly payment that people can receive from Social Security would be $3,148, which is an increase from $3,011 in 2020.
A higher wage cap will be applied for Social Security taxes.
Social Security is funded by collecting payroll taxes. Based on wages, the tax is predetermined at 12.4 percent. AARP explains that employees pay 6.2% towards payroll taxes, and employers pay 6.2%. Self-employed workers are required to pay the full tax at 12.4%. Annually, the absolute amount of earnings required to pay towards the payroll tax increases. Each year, there is a specific maximum amount of wages that indicates how much workers must pay towards taxes. In 2021, wages up to $142,800 will pay for Social Security taxes. In 2020, the wage threshold was $137,700. If workers earn more than $142,800 a year, they will not have to pay for Social Security taxes in 2021.
The earnings test limit will be higher.
When workers decide to retire and collect benefits before their full retirement age, they will be subject to receive reduced benefits for a specific amount of time. This process is called the retirement earnings test. In this scenario, Social Security with withhold payments if earnings exceed more than a certain limit. In 2020, people under their full retirement age were able to have $1 withheld by Social Security per every $2 they earn from earning more than $18, 240 a year. In 2021, payments will be set at $18, 960 a year or $1,580 monthly. Also, the Social Security Administration (SSA) with withhold $1 for every $3 a worker earns. In the month that a person reaches their full retirement age, Social Security will stop withholding benefits and increased monthly payments to return the previous withholdings.