The Social Security system has many rules about how you earn, file for and receive payments. However, the Internal Revenue Service publishes annual rule changes that help clarify everything.
For 2017, there are numerous — and significant — changes to the Social Security program. The following are the notable tweaks, and tips to help plan your Social Security strategy for the new year.
Rein In Your Spending Now
If you rely on Social Security income to cover costs, it might be time to tighten your belt. Social Security income will increase by a paltry 0.3 percent for 2017. The government’s modest increase in this payment is tied to a correspondingly meager rise in the Consumer Price Index from the third quarter of 2014 through the third quarter of 2016.
You might hear this change referred to in the media as the “cost-of-living adjustment,” or “COLA.” While 0.3 percent might not seem like a lot, it reflects the level of price inflation for everyday goods, from groceries to clothing. A small COLA for Social Security payments indicates that government figures don’t show costs for the average consumer rising much. In fact, inflation was so low that there was no COLA in 2016.
In real-world terms, this year’s cost-of-living adjustment translates to a monthly payment of about $2,260 for the average retired couple in 2017, up from $2,254 per month in 2016. That $6 isn’t going to get you very far, so start thinking now about the nonessential spending you can cut next year.
Prepare to Share That Big Raise With Uncle Sam
If you are among the lucky folks making well over six figures, prepare to share more of your bounty with the U.S. government.
Most employees pay 7.65 percent of their income into the Social Security system, the combined rate for both Social Security (representing 6.2 percent) and Medicare (1.45 percent). However, once you earn above the level of maximum taxable earnings, the Social Security portion of this payment — 6.2 percent of your earnings — vanishes. On the other hand, the 1.45 percent Medicare tax applies to all levels of income and has no phaseout.
For 2017, the amount of income subject to Social Security taxes increases to $127,200, up from $118,500 in 2016. Taxpayers who previously paid only the 1.45 percent Medicare tax on income between $118,501 and $127,200 now will pay the full 7.65 percent — for both Social Security and Medicare — on that amount.
Self-employed individuals — who have to pay both the employer and the employee portion of the tax — will pay 15.3 percent on all income up to $127,200. High earners — individuals making more than $200,000, or jointly filing couples earning $250,000 or more — also pay an additional 0.9 percent Medicare tax on all income.
In general, taxes might very well fall under President-elect Donald Trump. But until that day arrives, workers with big incomes should expect to see a little less in their paychecks during 2017.
Consider Working More Hours Next Year
Some people approaching their golden years remain ambitious, and would like to continue to work and earn as much money as possible. However, since Social Security is primarily meant as financial assistance for retirees, you can be penalized if you earn too much income while receiving Social Security payments.
The limit applies to Social Security recipients in three categories that revolve around a person’s “full retirement age.” That age varies, but you can check your full retirement age at the Social Security Administration website. The three categories are:
- Workers under full retirement age
- Workers at full retirement age
- Workers above full retirement age
The good news is that you will be able to earn more money penalty-free in 2017. If you opt to collect benefits before your full retirement age, you can earn up to $16,920 — or $1,410 per month — in 2017 without being penalized. The 2017 level is up from $15,720, or $1,310 per month, in 2016. For every $2 you earn above this limit, the Social Security Administration will withhold $1 in Social Security benefits.
For those filing for benefits upon attaining full retirement age, the yearly earnings limit is $44,880, or $3,740 per month. These levels are up from $41,880 per year, or $3,490 per month, in 2016. This applies only to earnings in the period prior to attaining full retirement age. For every $3 you earn above this limit, the SSA will withhold $1 in your Social Security benefits.
Once you pass your full retirement age, the earnings limit vanishes, and you’re allowed to earn as much income as you like without fear of a penalty cutting into your Social Security payments. Additionally, you’ll receive credit in the form of higher payments for any benefits withheld due to your working previously.
The takeaway? You can earn additional income in 2017 without being penalized, so consider working and saving just a little bit more before escaping into full retirement bliss.
Bank on a Larger Maximum Possible Benefit
During 2017, the maximum possible amount of money most people can receive in monthly Social Security payments is $2,687. That marks a $48 increase from 2016. Some exceptions to this rule exist. For example, workers who delay starting their payments until after retirement age might receive larger payments.
Over a year, you can expect to earn an extra $576 thanks to the monthly increase. So what will you do with that cash? Pay down some debt? Buy a new TV? Funnel the money back into savings? Now is the time to decide.
Make Sure You Earn $1,300 Each Quarter
To qualify for Social Security benefits, you need 40 “quarters of coverage,” also known as “Social Security credits.” Beginning in 2017, earning one Social Security credit will require you to earn at least $1,300 for that quarter. That is up from $1,260 in 2016.
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No matter how much you earn, you can only acquire four Social Security credits per year. Essentially, you’ll need to work for 10 total years to qualify for Social Security benefits — four Social Security credits times 10 years of work equals 40 credits. However, the quarters you work do not necessarily have to be consecutive.
For example, if you work for nine years and take one year off, you can still reach your required 40 quarters of coverage by earnings just four more quarters at any time.
The bottom line is to make sure you are earning at least $1,300 per quarter. So if you have not worked much over the years and are trying to earn Social Security credits, try to make a minimum of $1,300 in income each quarter until you have your full 10 years in.
Be Aware of Changes That Impact the Disabled
If you are disabled, your benefit depends on a number of factors that are changing slightly in 2017. So, make sure you know these rules as we head into a new year.
The government limits the amount of income that disability recipients can earn. In essence, you do not qualify for disability unless you are unable to engage in “substantial gainful activity,” or SGA. If you earn more than a specific amount, you are considered to be engaging in SGA.
In 2017, the SGA limits are $1,950 for blind individuals and $1,170 for nonblind participants. These amounts are increases of $130 and $40, respectively, over 2016.
Blind or disabled children are eligible for Supplemental Security Income, or SSI, unless they earn more than $1,790 per month, or $7,200 annually, in 2017. That is up from $1,780 per month, or $7,180 annually, in 2016.
Nonstudent recipients can qualify for SSI if their individual resources are below $2,000 for an individual, or $3,000 for a couple. Resources include things you own, such as cash, property, cars and more.
While the resources requirements remain unchanged from 2016, the amount of SSI payments ticks up slightly in 2017, to $735 for an eligible individual and $1,103 for a qualifying couple.