Social Security COLAs for 2012: Take the Bad with the GoodKen Berry
November 22, 2011 — 1,391 views
The Social Security Administration (SSA) recently announced cost-of-living adjustments (COLAs) for 2012. There's both good news and bad news for your clients. The good news: Retiree benefits are going up for the first time in two years. The bad news: The wage base for payroll taxes paid by both employees and employers is going up as well.
Let's tackle the bad news first. The SSA says the wage base for purposes of the 6.2 percent Social Security portion (OASDI) of payroll taxes will be $110,100 in 2012. That's an increase of $3,300 from the $106,800 threshold for 2011. Due to relatively low inflation, the wage base hasn't budged since 2009.
Note that the usual 6.2 percent tax rate on wages up to the amount of the wage base is reduced to 4.2 percent in 2011 for employees only. Employers are still liable for the tax at the 6.2 percent rate in 2011. The speculation is that Congress will extend this one-year "payroll tax holiday" to 2012 and possibly provide it to employers as well. One popular proposal would reduce the rate to 3.1 percent for both employees and employers. We'll continue to monitor new developments.
In any event, remember that the 1.45 percent Medicare portion (HI) of payroll taxes continues to apply to all wages. This isn't expected to change in 2012.
Now, here's some positive news. Social Security and Supplemental Security Income (SSI) benefits for more than 60 million Americans will increase by 3.6 percent in 2012. The COLAs will take effect with the benefits that almost 55 million Social Security beneficiaries will receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2011. These are the first hikes in benefits in two years.
Among other adjustments announced on October 19, 2011, the SSA is also increasing the thresholds for the so-called "earnings test" in 2012. If a retiree continues to work while receiving Social Security benefits, he or she must forfeit a portion of those benefits for earnings above a specified threshold. The earnings limits are subject to COLAs.
For retirees who haven't reached full retirement age, $1 of benefits will be forfeited for every $2 in earnings above $14,640 received in 2012 ($1,220 a month). This is a slight increase from the annual threshold of $14,160 ($1,180 a month) for 2011. For the year in which a retiree reaches full retirement age, he or she forfeits $1 of benefits for every $3 in earnings received above the threshold in the months before attaining full retirement age. The annual threshold for 2012 is $38,880 ($3,240 a month), up from $37,680 ($3,140 per month) in 2011. There's no earnings limit once the retiree reaches full retirement age.
Review the SSA's fact sheet on 2012 Social Security changes.
Article source: http://www.accountingweb.com/topic/accounting-auditing/social-security-colas-2012-take-bad-good