Each year the Social Security Administration announces cost of living adjustments that impact the monthly benefit to recipients for the following calendar year, and updates the limit on wages or self-employment income subject to Social Security tax. As the New Year approaches, you can expect the following changes to apply.
For current recipients of benefits
- The 2020 Cost of Living Adjustment (COLA) on benefits paid will be 1.6%. This means another $16/month for someone receiving a $1,000 monthly benefit. The 2020 cost of living adjustment is down from the 2.8% cost of living adjustment for 2019.
- For workers who are receiving social security benefits prior to reaching their full retirement age the adjusted earned income limit is $18,240. Anyone who will not reach their full retirement age in 2020 and has earned income in excess of the $18,240 limit will have $1 deducted from their benefit for each $2 earned over the limit.
- There is a separate earnings limit of $48,600 for anyone claiming benefits and turning 66 in 2020. This limit represents the amount of earned income a taxpayer can earn prior to their 66th birthday in 2020. To the extent earned income exceeds $48,600 in 2020, their benefit will be reduced by $1 for every $3 they earn over the limit.
- Once a taxpayer reaches their respective full retirement age, there is no longer a potential reduction of benefits based on earned income.
The other component that may impact your 2020 monthly benefit from Social Security is the adjusted cost of Medicare premiums.
- The updated Medicare premium amounts for 2020 were recently announced and are expected to increase roughly 7%. The amount of your actual premium will be based on your overall income for 2018.
A notice of benefits adjustment from the Social Security Administration will be available in December for review. The statements will either be mailed to recipients or available online through the My Social Security portal. If you do not have a My Social Security portal account, you will receive your notice in the mail.
For current workers not yet receiving benefits
For those taxpayers paying into the social security system based on their wages and self-employment income, the 2020 Social Security limit on earned income has increased to $137,700 from $132,900. This is the amount of wages or self-employment income each year that are subject to a 6.2% tax rate (12.4% for self-employed).
Over the last decade, the ceiling on wages and self-employment income subject to Social Security tax has increased by an average of 2.6% annually.