Social Security increases in more ways than one....
The Social Security Administration (SSA) has announced a pay raise for retirees and other recipients of the program's payments. The raise will be 1.3%.
At the same time the wage base is going up from $137,700 to $142,800. This means more money from both workers and their employers will go next year into to the Social Security trust fund, which pays for eventual retiree benefits. The most any one will pay for 2021 will be $8,853.50 in 2021 toward the government retirement program. If you don't make six figures, then you won't see any changes to your pay as far as this withholding. But if you're a high earner, more of your money will be subject to payroll withholding.
This also means an increase to the employer match as well.
As a reminder there is no income tax cap on Medicare. So you pay 1.45% on all your wages. There is also the Medicare surtax, part of the ACA. The Affordable Care Act, aka the ACA or Obamacare, assesses a 0.9 percent additional Medicare tax on employees who, as single taxpayers, earn more than $200,000 or more than $250,000 if married filing jointly. The surtax is only applied to the taxpayer and not the employer.
Tax tip. If you and your spouse together earn more than $250,000 you may end up owing more in taxes when you file, since the 0.9 percent is calculated on your tax return. Other earnings (not just wages) maybe included in this calculation (such as income from a pass through company like a S-Corporation).
The end of the year is a great time to do some tax planning, not only to review 2020 but to think about 2021. Roth conversions, SEP contributions, and other retirement options often come into play at this time of year. Also the Covid-19 pandemic has played havoc on many peoples incomes. Give us a call if you would like to do a review of 2020 and get ready (yes, its coming) to the new year.