The Social Security Tax system we have now is beginning to struggle. It is anticipated that by 2033 the system will be only be able to pay 77% of the promised benefits. Given that nearly one third of US retirees now depend on their Social Security benefits this will be a huge blow for the future.
The Government being aware of this shortfall and potential crisis have taken note and are introducing the ‘Social Security 2100 Act’, designed to protect the Social Security system and safeguard payments and improve benefits for current and future generations. A number of changes are proposed the most influential are:
- Change in COCL (Cost of Living Benefit)
- An Increase in the Threshold Amounts for Inclusion of Social Security Benefits in Taxable Income:
- Social Security Tax Rate – Phased-in Increase.
Change in cost of living benefit will include using the Consumer Price Index for the Elderly instead of the current method of calculation which uses the Consumer Price Index that covers everybody. Looking to measure the inflations that most affects the elderly and their pension.
Social Security Tax changes are being initiated to ensure that the system is being reformed to meet the changing needs of the population. More will be required but at least this is a start.
The first Social Security tax changes we will see involve the increase in the Threshold amount payable. All Social Security benefits are taxable; taking into to consideration provisional; income and filing status, 85% of you benefits could be subject to taxations. The Threshold limits have remained relatively low for many years resulting in more and more retirees being taxed every year. The proposed act will increase the threshold amounts for a couple from $44,000 a year to $100,000 for a married couple filing jointly. This in effect will lower the amount of taxes paid and increase the level of retirement income.
Now with all of these changes it means that retirees will look to have increased benefits but the Government needs to offset these potential increased payments to avoid a shortfall. To do this they are looking at introducing a ‘phased in Incremental Social Security tax rate’ where the increased tax payments will generate extra revenue without creating shortfalls. The increased tax would be looking to raise the amount from the current 6.2% paid by both employer and employee. This will be done incrementally every year from 2018 at 0.5% until it reaches 7.2% in 2033.
As always, seek advice if you are concerned regarding your benefits. You can always check you statement once a year by downloading it.
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