Every year Social Security payments are adjusted for inflation. That means that in most years, there is an increase in the monthly benefit paid to people collecting Social Security. This year, retirees can expect a small increase.
Social Security COLA for 2021
The Cost-of-Living Adjustment, or COLA, is calculated using an inflation index called the consumer price index, or CPI. The adjustment for the following year is set in October so that there is enough time to get everything processed. (It probably doesn’t take that long anymore, but the law says October, so that’s the way it goes.) Of course, in order to calculate the CPI, you have to have the whole month of data, so the best they can do in October is use the September number, which came out showing negative inflation. Social Security is never cut by COLA, so instead, it will stay the same for the following year.
The increase from 2020 to 2021 was will be 1.3 percent.
Income Cutoff for Paying Social Security 2021
The same index is used to determine how much income a current wage earner must pay for Social Security tax, sometimes called FICA on paystubs. Since the COLA adjustment for benefits is 1.3 percent, the maximum wages subject to Social Security tax also increases by 1.3 percent. The maximum taxable income for Social Security tax in 2021 is $142,800.
People with incomes above $142,800 will not pay social security taxes on the amount above $142,800. They do pay Social Security tax on the first $142,800 of income though.
Medicare taxes have no such limit and must be paid on the full amount of income.
Medicare Premiums for 2021
The really confusing part of all this is that there is a provision that states that if Social Security benefit payments do not increase, the most Medicare premiums do not increase either. This is known as a “hold harmless” provision.
You’ll be notified if you are one of the unlucky ones who must pay the higher premiums. Generally, it applies to new enrollees (the theory is that you aren’t already used to the lower amount), people who don’t get Social Security benefits in the first place (it makes no difference to you that there is no increase if you weren’t getting benefits in the first place), and those who have higher incomes.
Check My Social Security
You can check your own personal Social Security situation at the ssa.gov website.