Social Security Changes to Be Aware Of

Written by , April 10, 2013

Social Security Changes to Be Aware OfOne of the biggest political issues during 2012 was the future of the Social Security program. The most popular Social Security program – the retirement benefits program – is itself quite massive. The Social Security program provides approximately 65% of the program recipients with the majority of their retirement income, and it prevents roughly 15 million Americans from falling into poverty. In addition, individuals who are still many decades away from retirement are involved in the program through their payment of payroll taxes.

Because Social Security touches so many lives, even the smallest changes are likely to impact a large number of individuals.

Here are some of the Social Security program changes for 2013 that you should be aware of.

  • Withholding Returns to Standard Rates. In 2013, the Social Security withholding tax will revert back to its normal rate. A special Social Security tax “holiday” was temporarily in place during 2011 and 2012. The effect of this tax holiday was to reduce the total tax rate to 10.4% (through a reduction in the employee portion of the contribution). For 2013, the total tax rate will revert to 12.4%.
  • Maximum Taxable Earnings. For 2013, a larger amount of an individual’s taxable income will be subject to social security withholding. Specifically, the annual limit will rise from $110,100 to $113,700.
  • Cost of Living Adjustment. Individuals receiving Social Security benefits in 2013 should expect a 1.7% cost of living adjustment. Because of the way these types of adjustments are calculated, there have been relatively few over the past few years.
  • Obtaining Social Security “Credits”. As you may know, individuals become eligible for some level of social security retirement benefits provided that they work for at least 40 calendar quarters (i.e., the equivalent of 10 full years), and earn above a certain amount in each of those quarters. One qualifying quarter of earnings is known as a “credit.” For 2013, the minimum level of earnings to earn one Social Security credit will increase from $1,130 to $1,160.
  • Exempt Earnings During Retirement. Individuals who choose to begin receiving Social Security benefits before their full retirement age will have their benefits reduced if they continue working and earn above a certain amount each year. In 2013, the maximum earnings threshold before those reductions kick in will increase from $14,640 to $15,120.
  • Maximum Social Security Benefits. For individuals who are eligible for the maximum amount of Social Security retirement income, their monthly benefit at full retirement age will increase from $2,513 to $2,533. There will be similar increases for individuals eligible for the maximum benefit but choose to retire early, as well as those who wait beyond their full retirement age and earn deferral credits.
  • Finally, keep in mind that these may not be the only changes to the Social Security program that we see during 2013. As Congress attempts to work through the various fiscal issues facing the nation, it’s not unreasonable to expect additional modifications.

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