6 Important Changes to Social Security and Medicare

By Mitchell J. Smilowitz, CPA

This article reviews six changes to Social Security and Medicare (and two important reminders) that take effect in 2019. These include higher Social Security benefits for retirees, higher payroll taxes for higher-income workers and higher premiums for most Medicare beneficiaries.

Social Security Benefits Increase 2.8%

Social Security benefits increase 2.8% in 2019. This is the largest cost-of-living adjustment (COLA) in seven years. The average retirement benefit goes up by $39, to $1,461 per month ($17,532 per year); the average retired couple receives $67 more, to $2,448 per month ($29,376 per year).

Medicare Premiums Increase

Medicare Part B premiums, which pay for doctors’ visits and outpatient services, rise slightly this year. Most Medicare beneficiaries will pay $135.50 per month, up $1.50 from last year. As a result, after deducting Medicare premiums, most Social Security beneficiaries will see a noticeable increase in their cash benefit, especially compared to 2018 when a big jump in Medicare premiums wiped out most of the 2018 Social Security COLA.

Medicare Surcharges Change

Since 2007, Medicare beneficiaries whose Modified Adjusted Gross Income (MAGI) exceeded $85,000 for individuals and $170,000 for married couples paid an Income-Related Monthly Adjustment Amount surcharge (IRMAA) for Medicare Part B and Medicare Part D prescription drug plans. This surcharge increases in 2019.

Medicare Part B monthly premiums plus surcharges range from $54.10 to $325.00 per person per month depending on income. Medicare Part D surcharges range from $13.00 to $74.80 per month per person depending on income. For more information, see the Social Security Administration publication Medicare Premiums: Rules for Higher-Income Beneficiaries.

Wages Subject to Social Security Taxes Increase

While income taxes may be going down because of the new tax law, Social Security payroll taxes are increasing for high income workers. The maximum wages subject to payroll taxes, which fund Social Security benefits, increase by $4,500 this year to $132,900. This means that those earning $132,900 or more will pay an additional $279 in Social Security payroll taxes.

All wages, including those above the $132,900 cap, are subject to the 1.45% payroll tax for Medicare. Single taxpayers with earned income above $200,000 and married couples with earned income topping $250,000 pay an additional high-income surcharge of 0.9% in Medicare taxes.

The new Social Security payroll tax limit of $132,900 and high-income Medicare surcharge of 0.9% also apply to those subject to self-employment taxes (SECA).

Earnings Cap Increases for Early Retirees

In 2019, those who begin their Social Security benefits before they reach full retirement age (see "The Retirement Age Is Rising" below), can earn up to $17,640 before their benefits are reduced, $600 more than last year. For income earned above $17,640, the benefit is reduced by $1.00 for every $2.00 earned.

Those reaching full retirement age in 2019 can earn up to $46,920 in the months preceding their birthday without jeopardizing any benefits, up $1,560 from last year. For earnings above that limit, these beneficiaries lose $1.00 in benefits for every $3.00 earned.

The earnings cap disappears once a beneficiary reaches full retirement age; once a person reaches full retirement age they can earn any amount without forfeiting benefits.

Benefits lost to the earnings cap are not lost forever. They are credited back to you in the form of higher monthly benefits once you reach full retirement age.

Qualifying for Benefits Costs More

Social Security “credits” are used to determine the level of benefits for which a person qualifies. To be eligible for Social Security and Medicare, you must earn at least 40 Social Security credits with a maximum of four credits per year. The cost of the credits that a worker needs to qualify for Social Security benefits and Medicare coverage is going up this year. In 2019, each credit represents $1,360 in earnings, up $40 from last year. That means an individual must earn at least $5,440 in 2019 to qualify for four credits.

Remember: The Retirement Age Is Rising

The current full retirement age is 66 for those born between 1943 and 1954. The full retirement age increases for workers beginning with those born in 1955. The full retirement age for those born in 1955 is 66 years and two months. The full retirement age continues to increase by two months in each subsequent year before levelling off at 67 years for those born in 1960 and later. This chart details how the full retirement age has increased over time.

Remember: Social Security Benefits Are Taxable

You may need to pay taxes on your Social Security benefits based on your total income. This includes adjusted gross income plus tax-exempt interest and half of your total Social Security benefits. Individuals whose total income is between $25,000 and $34,000 pay income taxes on up to half of their Social Security benefits. Once an individual’s total income tops $34,000, they pay income taxes on up to 85% of their benefits. Married couples with total income between $32,000 and $44,000 pay taxes on up to 50% of their Social Security benefits. Once their total income tops $44,000, they pay taxes on up to 85% of their benefits.

Social Security and Medicare affect almost everyone. We’re either paying Social Security payroll taxes or receiving benefits – sometimes both! As a result, changes to the program affect us all. If you have questions about these changes and how they may apply to you, please contact the JRB by email or call us at 888-JRB-FREE (572-3733).