2020 Social Security & Medicare Update

By Greer Gibson Bacon, CFP®

If you’re currently retired or disabled …

  • Your January 2020 benefits will increase by 1.6% based on a “like” change in the Consumer Price Index (CPI-W) for the year ending September 30, 2019.  For workers retiring at full retirement age (FRA), this boosts the average monthly benefit to $1,503 and the maximum monthly benefit to $3,011.
  •  If you receive early retirement benefits and continue working, you may be subject to the annual earnings test.  Specifically, if you’re under FRA, you benefits will be reduced by

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

    $1.00 for every $2.00 your earnings exceed $18,240 ($1,520/month).  Except, if you reach FRA in 2020, they will be reduced by only $1.00 for every $3.00 your earnings exceed $$48,600 ($4,050/month).  There is no reduction once you reach FRA.
  • The standard Medicare Part B premium and deductible are projected to increase to $144.30 and $197.00, respectively.  If you are a high income beneficiary, you will pay a surcharge on your Medicare Part B and D premiums, too.  This is triggered when adjusted gross income (AGI) is $87,000 or more for single taxpayers and $174,000 or more for married taxpayers. 

If you’re still working …

  • The Social Security base wage increases to $137,700.  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 a 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 and $250,000 or more for married taxpayers.  This surtax was 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 modified adjusted gross income (MAGI) above a specified threshold[1].  As above, the thresholds are earnings of $200,000 or more for individual taxpayers and $250,000 or more for married taxpayers.  This surtax was enacted as part of the Affordable Care Act.

 

 

 

 

 

 

 

 



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

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