Social Security Changes for 2019

More than 62 million Social Security beneficiaries will receive a cost-of-living adjustment (COLA) of 2.8% starting with the December 2018 benefits, which are payable in January 2019. This COLA adjustment is higher than the 2% increase last year (Social Security Administration Press Release and Fact Sheet, 10/11/18; https://www.ssa.gov/news/press/factsheets/colafacts2019.pdf).

However, for many Social Security recipients, the net benefit of the 2.8% COLA will be reduced by an increase in Medicare B premiums. The basic Part B premium for 2019 will be $135.50, up from $134 in 2018. About 2 million Social Security beneficiaries will be held harmless, meaning they will pay a slightly lower monthly premium to keep the increase in their Part B premium from exceeding the increase in their Social Security benefits.

Along with the 2.8% benefits COLA comes an increase in the maximum amount of earnings subject to the 6.2% Social Security tax. For 2019, earnings up to $132,900 are subject to the tax, up from $128,400 in 2018. This means that employees who earn wages of $132,900 or more in 2019 will have the maximum Social Security tax of $8,239.80 (6.2% x $132,900) withheld from their wages; the employer pays the same amount as the employee.

Self-employed individuals will figure their 2019 self-employment tax (Schedule SE) by applying the Social Security tax rate of 12.4% (6.2% employer share plus 6.2% employee share) to their first $132,900 of net earnings, but this is after the net earnings are reduced by 7.65%.

All wages, regardless of amount, are subject to the 1.45% Medicare tax withholding rate, and on Schedule SE, all self-employment net earnings (after the 7.65% reduction) are subject to the 2.9% Medicare tax (employer and employee shares). The $132,900 ceiling applies only to Social Security tax, not Medicare. In addition, employees and self-employed individuals with earned income over $200,000, or $250,000 if married filing jointly ($125,000 if married filing separately), must pay Additional Medicare Tax of 0.9%.

Social Security earnings limit. For benefit recipients who are under age 66 for all of 2019, benefits will be reduced by $1 for every $2 of earnings over $17,640 (it was $17,040 in 2018). For recipients who attain age 66 during 2019, benefits will be reduced by $1 for every $3 of earnings over $46,920 (it was $45,360 in 2018), but only the earnings in months prior to the month of the 66th birthday are counted. There is no benefit reduction for earnings starting in the month that age 66 is reached. A more favorable rule generally applies if 2019 is the first year of receiving benefits. If it is, and if the recipient will not reach age 66 until after 2019, there generally will be no benefit reduction for any month in which 2019 earnings do not exceed $1,470, or 1⁄12 of the full-year limit of $17,640 (in 2018 that was $1,420, or 1⁄12 of $17,040). If age 66 will be reached in 2019, there will be no benefit reduction for any month prior to the 66th birthday month in which earnings do not exceed $3,910, or 1⁄12 of $46,920 (in 2018 it was $3,780, 1⁄12 of $45,360). However, the favorable “first year” rule does not apply for a month in which the recipient is self-employed and devotes either more than 45 hours to the business or between 15–45 hours in a highly skilled occupation. Keep in mind that if benefits are reduced because of the earnings limits, they are added back to the benefits received after reaching full retirement age.