Medicare Medical (Part B) premium varies with income

Posted on May 20, 2013 by Howard Kossover

Medicare Medical (Part B) coverage helps pay for doctors’ services and outpatient care along with other services.

Most people incorrectly think that the costs of providing Medicare Part B coverage are covered by the monthly Part B premium.

Since its start, the Medicare Part B premium has been highly subsidized. The standard Part B premium paid by most people covers only about 25 percent of actual coverage cost, with the government paying the remaining 75 percent. In 2013, the standard Medicare Part B premium is $104.90 per month.

Since 2007, a small percentage of higher income beneficiaries have paid a higher monthly Part B premium. This affects less than 5 percent of people with Medicare. Most people do not pay a higher premium. Higher Medicare Part B premiums start for individuals having a modified adjusted gross income (MAGI) above $85,000 or couples above $170,000.

Using an income-based sliding scale based on the amount of modified adjusted gross income reported to the IRS, these premiums could equal 35, 50, 65 or 80 percent of the total premium cost. Increased monthly premiums can be appealed. In addition, if you pay an increased premium and your income has gone down because of the following reasons, an increased premium can be reviewed without an appeal. These reasons are:

You married, divorced, or became widowed;
You or your spouse stopped working or reduced your work hours;
You or your spouse lost income-producing property due to a disaster or other event beyond your control;
You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan; or
You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization.

If any of the above applies, you will be asked for documentation verifying the event and the reduction in your income.

Higher-income beneficiaries with Medicare prescription drug coverage (Part D) also pay higher premiums.

More information is in the booklet “Medicare Premiums: Rules for Higher-Income Beneficiaries, online at www.socialsecurity.gov/pubs/10536.html.

General Medicare information is at http://www.socialsecurity.gov/pgm/medicare.htm and at the official Medicare website, http://www.medicare.gov/.

Pensions and Social Security, Part 2 – WEP

Posted on April 18, 2013 by Howard Kossover

Continuing the topic of how a pension might affect Social Security benefits, the general rule is that your company pension will not affect your Social Security benefits because most employment is covered by Social Security.

So what pensions can affect Social Security? The main pension involved is from government employment, not covered by Social Security. Key is that this government employment was not covered by Social Security, meaning you did not pay Social Security payroll tax on those earnings, you did not earn coverage for SSA benefits and those earnings do not appear on your SSA work record.

Relatively few people are in this situation, but it is important to those that are. Any government level can be involved, not just Federal or state. Local government employment, including school districts, may or may not be covered by Social Security.

Since their government employment was not covered by Social Security, for those involved any eligibility to a Social Security monthly benefit would have been earned either from other work that the person had on their own or through someone else’s record, such as through a spouse. The government pension not covered by Social Security affects benefits differently depending on this.

Called the Windfall Elimination Provision (WEP), today’s topic is when the SSA benefit is from the person’s own work. SSA benefits through someone else’s record will be covered later.

Enacted in the Social Security Amendments of 1983, the Windfall Elimination Provision provides a different formula for calculating SSA amounts. While not a direct offset or reduction of the government pension against the persons own Social Security benefit, the formula used results in a lower Social Security amount than otherwise would be received.

Why is this? Social Security benefits replace a percentage of a worker’s pre-retirement earnings. By design, lower-paid workers get a larger percentage of pre-retirement earnings than higher paid workers. Work not covered by Social Security does not appear on the person’s SSA record. This incorrectly makes the person’s average earnings appear lower, leading to a larger percentage of pre-retirement earnings paid. The Windfall Elimination Provision formula adjusts for this.

The WEP formula takes into account how many years of work you have under Social Security covered employment. Overall, the reduction in the Social Security benefit cannot be more than one-half of the amount of the pension from work not covered by Social Security taxes.

The Windfall Elimination Provision does not affect most people. More about it is in SSA publication 05-10045 – Windfall Elimination Provision.

Use the special WEP Online Calculator if the WEP involves you. The usual website calculators, including the Retirement Estimator and your Social Security Statement, will not provide an accurate estimate when the WEP is a factor.

Pensions and Social Security, Part 1

Posted on April 16, 2013 by Howard Kossover

Last week I taught several Social Security pre-retirement sessions, always a source of questions. Questions about pensions and Social Security were asked at each session, providing today’s topic.

The general rule, with one main exception, is that your company pension will not affect your Social Security benefits.

Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. Only earned income, your gross wages or net income from self-employment, is covered by Social Security. You may have to pay income tax on pensions, annuities, interest or dividends, but you do not pay Social Security taxes. Those types of income are not on your Social Security record.

So what pensions can affect Social Security? The main pension involved is from government employment that was not covered by Social Security. Key here is that this government employment was not covered by Social Security, meaning you did not pay Social Security payroll tax on those earnings, you did not earn coverage for SSA benefits and those earnings do not appear on your SSA work record.

Government employment can be from any level, not only Federal or state levels. For example, local government employment, including school districts, may or may not be covered by Social Security.

If your government employment is covered by both a pension plan and Social Security, you pay Social Security and Medicare taxes just as you would for any other SSA covered job. You earn coverage for the SSA retirement, survivors and disability programs and your earnings will be on your SSA record. This pension will not affect your Social Security benefit.

Federal employment provides an example of when a government pension might affect Social Security benefits, and when it will not. Noted above, key is whether the employment was covered by Social Security.

Until 1984, Federal government employment was covered under the Civil Service Retirement System (CSRS) and not by Social Security. Since this employment was not covered by Social Security, employees did not pay Social Security tax on earnings, did not earn SSA coverage and those earnings are not on their SSA work records. A CSRS pension will generally affect a Social Security benefit, if the person becomes eligible for one. Since CSRS covered work did not provide Social Security coverage, eligibility for a Social Security benefit would be from other work that the person had on their own or through someone else’s record. More about this will be in future posts.

A second Federal retirement system, the Federal Employees Retirement System (FERS), started in 1984. People who began working for the Federal government in 1984 or later are covered by FERS instead of the Civil Service Retirement System (CSRS). Work under FERS is covered by Social Security. Employees pay SSA taxes, earn SSA coverage and their earnings are shown on their Social Security work record. A FERS pension does not affect a Social Security benefit.

The Retirement Planner section of the Social Security website, www.socialsecurity.gov, has information and calculators to help in your retirement planning. Concerning today’s topic, see “Learn how certain types of earnings and pensions can affect your benefits.”

What are the 2013 Social Security taxable earnings? How much total FICA tax have I paid?

Posted on February 22, 2013 by Howard Kossover

Q: What are the maximum Social Security taxable earnings for 2013? How much total FICA tax have I paid?

A: In 2013, the taxable maximum amount of wages or self-employment earnings subject to Social Security (FICA) tax is $113,700.

When you have wages or self-employment income covered by Social Security, you pay Social Security payroll taxes each year up to a maximum amount set by law. For 2013, you pay Social Security taxes on earnings to $113,700. Medicare taxes are paid on all income. There is no Medicare taxable maximum amount.

When you have more than one job in a year, each of your employers must withhold Social Security taxes on your wages without regard to what the other employers may have withheld, so you may potentially have Social Security taxes withheld that exceed the maximum. You can claim a refund of the overpaid taxes when you file your personal income tax return with the Internal Revenue Service.

The combined tax rate for Social Security and Medicare is 7.65 percent. Of this, the Social Security portion is 6.20 percent on earnings up to the applicable taxable maximum amount. The Medicare portion (HI) is 1.45 percent on all earnings.

For 2013, covered wage or self-employment tax rates are:

Employees — the Social Security tax rate is 6.2 percent on income under $113,700 through the end of 2013. The Medicare tax rate is 1.45 percent of all income;
Employers — the Social Security tax rate is 6.2 percent. The Medicate tax rate is 1.45 percent; and
Self-employed —the Social Security tax rate is 12.4 percent on income under $113,700 through the end of 2013. The Medicare tax rate is 2.9 percent.

The taxable base amount has changed frequently over the years. Yearly maximum taxable earnings from 1937 to 2013 are at http://www.socialsecurity.gov/planners/maxtax.htm#maxEarnings.

The three components of Social Security are known as OASDI for old-age (retirement), survivors and disability insurance. The Social Security payroll tax paid by employers, employees and the self-employed is divided between the old-age (retirement) / survivors fund and the separate disability fund. Most goes to the retirement / survivors fund.

How much total FICA tax have you paid? This depends on your total earnings and if you have wages or self-employment. You can use the following link, then go to table #2.A4, to estimate how much Social Security payroll tax you have paid since starting to work.

The Social Security Annual Statistical Supplement, 2012, contains detailed FICA payroll tax information.

Table 2.A3 contains the annual maximum taxable earnings and percentages to the different SSA programs and Medicare.
Table 2.A4 contains the maximum annual amount of contributions, 1937–2012. Use this to estimate your Social Security payroll tax paid since starting to work.The table shows yearly tax maximums payable for an employee or self-employed person since 1937. Employer amounts are not shown, but equal employee amounts. Medicare taxes are not included past 1994 since there has not been a maximum Medicare amount since then. Note footnotes concerning 2011-2012 tax amounts.

Newest Annual Statistical Supplement now online

Posted on February 7, 2013 by Howard Kossover

The Annual Statistical Supplement, 2012 just became available online at http://www.ssa.gov/policy/docs/statcomps/supplement/2012/index.html.

There is a massive amount of interesting information here, not just concerning Social Security retirement (old-age), survivors and disability insurance (OASDI), but also about other programs including Supplemental Security Income (SSI), Medicare, Medicaid, Unemployment Insurance, Workers’ Compensation, Black Lung Benefits, and Veterans’ Disability Benefits. Each Table of Contents topic has a link to that section in html or pdf formats.

Specific information provided depends on the topic. At approximately 528 pages in length, you will find something in the Annual Statistical Supplement, 2012 to interest you. The Supplement includes more than 240 statistical tables of comprehensive data on Social Security and Supplemental Security Income. Using Social Security as an example, topics include:

Historical and current material about the two SSA trust funds. A different section discusses the separate Medicare trust funds.
Information about people working and paying into Social Security providing number of workers, amount of earnings, sex, and wages or self-employment.
By program, numbers of beneficiaries receiving Social Security benefits in 2011. Beneficiary data is provided by amount, sex, age and other configurations including individual state information.

From the Highlights and Trends section, here are two interesting tidbits for you:

“About 55.4 million persons received Social Security benefits for December 2011, an increase of 1,372,512 (2.5 percent) since December 2010. Sixty-nine percent were retired workers and their spouses and children, 11 percent were survivors of deceased workers, and 19 percent were disabled workers and their spouses and children.”

“OASDI benefit awards in calendar year 2011 totaled 5,567,020, including 2,577,647 to retired workers, 498,248 to their spouses and children, and 885,713 to survivors of insured workers. Benefits were awarded to 998,979 disabled workers and to 606,433 of their spouses and children.”

Again, more than just Social Security information is in the Annual Statistical Supplement, 2012. Enjoy.

Form SSA-1099 for tax year 2012

Posted on February 1, 2013 by Howard Kossover

If you need to pay taxes on your Social Security benefits, a Form SSA-1099 for tax year 2012 will be needed. The SSA-1099 shows the total amount of benefits received in the previous year. Social Security mails the form to all beneficiaries by January 31.

Anyone needing to replace a SSA-1099 for 2012 can now request a replacement at www.socialsecurity.gov/1099. A copy of your SSA-1099 will arrive in the mail in about 10 days (30 days if you live outside the United States).

The replacement SSA-1099 is mailed to the address on file at Social Security. If you recently moved without yet providing your new mailing address, you must report your change of address to Social Security before the request for a replacement SSA-1099 can be processed.

Tax tips to share:

Make sure all dependents listed on a taxpayer’s annual tax forms have Social Security numbers.
Check the names and numbers to make sure they match up.The Internal Revenue Service (IRS) checks all the names and Social Security numbers on tax returns against Social Security Administration records. If the names and numbers do not match Social Security’s records, it could mean a delay in receiving any tax refund due.

For more information on taxation of Social Security benefits, or to order the publication “Tax information for Older Americans” (Publication #554), call the IRS at 800-829-3676 or visit the IRS website, www.irs.gov.

You can have taxes withheld from Social Security benefits

Posted on January 14, 2013 by Howard Kossover

Q: Are taxes withheld from SSA benefits?

A: Taxes are not routinely withheld from Social Security benefits.

If desired, you can request voluntary Federal tax withholding from your monthly Social Security benefits. You may find doing this easier than paying quarterly estimated tax payments. See http://www.socialsecurity.gov/planners/taxwithold.htm.

To start voluntary Federal tax withholding you need to complete Internal Revenue Service (IRS) form W-4V and return it to your local Social Security office. To change or end an ongoing voluntary withholding you would complete another form W-4V.

Withholding is by your selected percentage of monthly benefits, not a flat dollar amount. When completing the W-4V you select the percentage of benefits for tax withholding. Available options are to have 7 percent, 10 percent, 15 percent or 25 percent of your monthly benefit withheld.

The Social Security Administration has no authority to withhold state or local taxes from your benefit. Voluntary withholding is only for Federal taxes.

Social Security employees cannot provide tax advice. If voluntary withholding interests you, discuss it with your tax preparer or call IRS at 1-800-829-3676 (TTY 1-800-829-4059).

What is the maximum taxable base? Why does it matter?

Posted on December 17, 2012 by Howard Kossover

What is the maximum taxable base for Social Security? Why does it matter?

Simply put, the wages and self-employment income of most people are covered by Social Security. Each year, people pay Social Security taxes based on that work up to the maximum amount set by law. This amount is the maximum taxable base. It has changed frequently over the years.

A person’s best 35 years of earnings are used to compute their Social Security full retirement age (FRA) amount. With each new calendar year, a year of potentially higher earnings becomes available for use. Not only might their actual earnings be higher, but, depending on the maximum taxable base for that year, more earnings could be credited for use in the Social Security computation.

To illustrate how earnings credited to a Social Security record can change with the taxable base; say a person earned $43,000 in each of 1985, 1986 and 1987. The maximum taxable base in 1985 was $39,600, in 1986 it was $42,000, and in 1987 it was $43,800. Although the amount of earnings in this example stays constant, amounts credited to the persons Social Security record change each year.

For this example, 1985 earnings were above the maximum base of $39,600. Earnings that year were taxable for Social Security only to the maximum base amount so, for 1985, the worker had $39,600 credited to his or her Social Security record even though earnings were $43,000. Once earnings reached the tax base of $39,600, the person stopped paying Social Security payroll tax.

For 1986, even though earnings in this example did not change from 1985, due to the higher taxable base, this year the higher earnings of $42,000 were credited to the work record. As before, the person stopped paying Social Security payroll tax once reaching the taxable earnings amount but more earnings became available for future computation of benefits.

In 1987, for this example, the earnings of $43,000 were below the taxable maximum. The worker paid Social Security tax on all his or her earnings. Due to the higher taxable base, earnings of $43,000 were credited to the work record.

Due to changes in maximum taxable earnings, in this example three years of equal earnings became three different amounts credited to the workers Social Security work record, and available for use in determining future Social Security benefits.

For 2012, the Social Security maximum amount of taxable earnings is $110,100. The maximum amount of taxable earnings for 2013 is $113,700.

Medicare payroll tax does not have a maximum taxable base limit. It continues for all applicable wage and self-employment income during the year even after Social Security tax ends.

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