On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
The Social Security Administration (SSA) announced that Social Security (SS) benefits will be revised for a cost-of-living adjustment (COLA) increase of 0.3% in 2017. While this is better than the 0% increase that occurred for 2016, don’t get excited; the typical older adult receiving benefits will see only a $4.00 increase in his or her monthly check to about $1,360, according to the SSA.
At the same time, the SSA bumped the maximum amount of earnings subject to the Social Security tax to $127,200, up from the current $118,500, an increase of 7.34%. Only about 12 million individuals will be affected by that increase since most American wage earners make less than the $127,200 maximum, and thus the increase will be borne by the 12 million higher-income taxpayers.
The COLA is supposed to ensure that people receiving SS benefits continue to have the same purchasing power from one year to the next without regard to inflation. Older adults, in particular, need this inflation protection since their savings and other income tends to fall as they age, including their pensions, and their dependence on Social Security increases. The meager increase is due in part to the fact that the SSA uses a different consumer price index (CPI), which is much lower than the CPI used to adjust tax rates. It’s clear that the SSA’s CPI is not delivering adequate inflation protection to older adults.
This is overshadowed by the fact that the Medicare Trustees in their June report cautioned that there could be a substantial increase in the Medicare Part B Premium for those currently paying $121.80 a month. These folks, whose premiums went up by over 16% for 2016, could see another increase that would bring their monthly premium to as much as $149, an increase of over 20% for 2017.
If you are substantially helping an elderly relative make ends meet, there may be an opportunity for some tax benefit. Please call for assistance.