2018 Social Security & Medicare Update

By Greer Gibson Bacon, CFP®®

If you’re currently retired …

  • Your Social Security benefits increase by 2%.  This is based on a “like” change in the Consumer Price Index (CPI-W) for the year ending September 30, 2017.
  • You may be subject to the annual earnings test if you receive early retirement benefits and continue working.  Specifically, if you’re under full retirement age (FRA), your benefits will be reduced by $1.00 for every $2.00 earnings exceed $17,040 ($1,420/month).  Except, if you reach FRA in 2018, your benefits will be reduced by $1.00 for every $3.00 earnings exceed $45,360 ($3,780/month).  There is no reduction once you reach FRA.

If you’re subject to the annual earnings test, it’s important to know Social Security will re-calculate your benefit when you reach FRA, crediting you for months where your benefit was reduced or lost.  For example, if your benefit was reduced because you took it 36 months before FRA and you lost benefits for 12 months, your benefit will be recalculated assuming you took benefits 24 months before your FRA not 36.  

  • The standard Medicare Part B premium increases to $134/month.  Also, you may pay a monthly surcharge based on your 2016 modified adjusted gross income (MAGI), as illustrated below.  The Medicare Part B deductible increases to $183/year.

2016 MAGI

            Individual Taxpayers                                                    Married Taxpayers

2018 Part B Premium

$85,000 or less

$170,000 or less

$134.00

$85,001 to $107,000

$170,001 to $214,000

$187.50

$107,001 to $160,000

$214,001 to $320,000

$267.90

$160,001 to $214,000

$320,001 to $428,000

$348.30

$214,001 or more

$428,001 or more

$428.60

MAGI is defined as adjusted gross income (AGI) plus tax-exempt bond interest.

  • The Part D National Base Beneficiary Premium decreases to $35.02/month.  Your premium may be higher or lower depending on your plan, its formulary and coverages.  Also, you may pay a monthly surcharge based on your 2016 MAGI, as illustrated below.

2016 MAGI

               Individual Taxpayers                                                Married Taxpayers

2018 Part D Premium

$85,000 or less

$170,000 or less

Your Plan Premium

$85,001 to $107,000

$170,001 to $214,000

Your Plan Premium + $13.00

$107,001 to $160,000

$214,001 to $320,000

Your Plan Premium + $33.60

$160,001 to $214,000

$320,001 to $428,000

Your Plan Premium + $54.20

$214,001 or more

$428,001 or more

Your Plan Premium + $74.80

MAGI is defined as AGI plus tax-exempt bond interest.

If you’re still working …

  • The Social Security base wage increases to $128,400.  Employees will pay the 6.2% Social Security tax on earnings up to the base wage and the 1.45% Medicare tax on all earnings.  Your employer will pay “like” taxes for your benefit.  Since self-employed individuals are both employee and employer, they’ll pay 12.4% Social Security tax on earnings up to the base wage and 2.9% Medicare tax on all earnings
  • If you’re a high income worker, you’ll pay the 0.9% Medicare surtax on your earnings above a specified threshold.  The thresholds are earnings of $200,000 or more for individual taxpayers or $250,000 or more for married taxpayers.  Enacted as part of the Affordable Care Act.

Whether you’re currently retired or still working …

  • If you’re a high income investor, you’ll pay the 3.8% Medicare surtax on the lesser of net investment income (NII) or MAGI above a specified threshold.  As above, the thresholds are MAGI of $200,000 or more for individual taxpayers or $250,000 or more for married taxpayers.  Enacted as part of the Affordable Care Act.

        For purposes of this surtax, MAGI includes AGI and foreign earned income.  But, it excludes retirement distributions, Social Security and VA benefits, and income from businesses in which you actively          participate.  Also, it excludes municipal bond interest and life insurance proceeds.

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