Social Security Changes for 2021
If there’s one program that captures the attention of both retirees and workers alike, it’s Social Security. So, it stands to reason that both groups are affected when the Social Security Administration (SSA) makes changes to the program every year—and 2021 is no exception.
To become eligible for Social Security, workers must earn 40-lifetime work credits, which are based on a person’s earned income. A maximum of four work credits can be earned in one year. In 2021, workers must earn more to qualify for a work credit now that SSA increased the income requirements.
In 2020, it took $1,410 in earned income to receive one-lifetime credit, and $5,640 to receive four credits for the year. In 2021, the amount of earnings went up to $1,470 for one-lifetime work credit, and $5,880 to earn four work credits for the year.
The work credits weren’t the only increases for 2021. Here are other changes made to Social Security:
Cost-of-Living Adjustment Increase
Nearly 70 million Social Security recipients received a modest 1.3 percent cost-of-living adjustment (COLA) for 2021. The average retired worker saw a $20 increase in monthly benefits that went from $1,523 in 2020 to $1,543 in 2021. What’s more, benefits for the average disabled worker rose to $1,261 from $1,277 in 2020.
The SSA bases the COLA on the Department of Labor’s Consumer Price Index (CPI-W). Social Security raises monthly benefits if the CPI-W rises due to an increase in inflation, which leads to a higher cost of living.
Also seeing a 1.3 percent COLA increase were people receiving Supplemental Security Income (SSI), a needs-based program administered by SSA. SSI provides monthly payments to people who have low income and few resources, and who are 65 and older, blind, or have a disability.
Earnings Test Limit Increases
The earnings test limits increase for people who are reaching full retirement age (FRA) this year and still earning income. FRA is the age in which workers are eligible to receive 100 percent of their Social Security benefits. The FRA for 2021 is 66 years and two months.
People who will reach FRA this year can earn up to $50,520 a year ($4,210 a month). However, for every $3 earned over the $50,520 limit, Social Security withholds $1 from a person’s benefits until the person reaches FRA. The $50,520 limit is up from the $48,600 ($4,050 a month) limit in 2020.
The SSA says it’s important to note that benefits withheld from individuals who went over the limit are not “lost.” An individual’s monthly benefits will permanently increase to make up for the months in which the benefits were withheld.
People who have not reached FRA yet filed early for Social Security benefits also face the earnings test in 2021. The earliest people can apply for Social Security is 62 years old. However, monthly payouts are permanently reduced for people receiving Social Security benefits before their FRA.
In 2021, people receiving their Social Security early can only earn up to $18,960 each year. Social Security will withhold $1 from monthly benefits for every $2 over the $18,960 limit. In 2020, the limit was $18,240.
Payroll Tax Cap Increases
The payroll tax helps to fund Social Security, which means that people currently working pay for the monthly benefits Social Security recipients are now receiving. Employees and employers each pay 6.2 percent payroll tax for Social Security while self-employed workers pay the entire 12.4 percent Social Security tax.
For 2021, Social Security capped the maximum amount of earned income subject to the payroll tax at $142,800, a $5,100 increase over 2020, when earned income up to $137,700 was taxable.
A Slight Increase In Medicare Part B Premium
A move by Congress last year helped to limit a significant jump in the standard monthly premium for Medicare Part B, which covers doctor’s visits, outpatient care, home health care, and other medical services.
Many Social Security recipients have Medicare Part B premiums taken out of their Social Security benefits. Medicare Part A, which does not require a premium, covers inpatient hospitalization, skilled nursing care, hospice care, and some home healthcare services.
In 2020, a $50 a month Part B premium increase was predicted, primarily due to increased emergency Medicare spending because of COVID-19.
AARP, and other advocates for seniors, contended that a premium hike would make it hard for many older adults to pay their monthly premium. What’s more, AARP also said that a higher-than-usual premium would more than likely take away any COLA that SSA set for 2021.
So, Congress added enough money to Medicare to avoid the increase. As a result, the standard monthly premium for Medicare Part B went from $144.60 in 2020 to $148.50, an increase of $3.90.
Links:
https://www.aarp.org/retirement/social-security/info-2020/biggest-social-security-changes-for-2021.html?cmp=EMC-DSO-NLC-WBLTR-SAPLA-SOCSEC-MCTRL-120420-TS1-5053456&ET_CID=5053456&ET_RID=24720215&encparam=FrpXHVVpy6GDKpHCoVBzxSjUd9bWzTGWcY42Dxffhwc%3d
https://www.aarp.org/politics-society/advocacy/info-2020/congress-medicare-part-b.html
https://www.ssa.gov/oact/cola/rtea.html
https://www.ssa.gov/pubs/EN-05-10003.pdf
https://blog.ssa.gov/social-security-benefits-increase-in-2021/
