The Social Security Administration typically updates key numbers for the upcoming year in the fall. One of the key numbers for retirees is the cost-of-living change: A 1.3% increase will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2021. Increased payments to more than 8 million SSI beneficiaries will begin on Dec. 31, 2020. The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.
Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (the “taxable maximum”) will increase to $142,800 from $137,700. As in the past, that ceiling applies only to the Social Security portion (the OASDI), which is 6.20%. There is no earnings ceiling for the 1.45% Medicare portion.
Nor are the rates themselves changing: Employees will continue to pay 7.65% and self-employed workers will continue to pay the full 15.30%. Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) will continue to pay an additional 0.9% in Medicare taxes.
A full summary of all changes is available at the SSA site.