The guidelines for Social Security and Medicare for 2016 have been released by the Social Security Administration. While much has remained unchanged, there are some notable changes that could affect the amount of taxes you pay or the benefits you receive.
Cost Of Living Adjustment
Inflation in 2015, as measured by the Consumer Price Index, was too low to trigger a cost of living adjustment for monthly benefits for 2016. This is the third time there has been no Social Security payment increase since 1975 with the others in 2010 and 2011. For 2016, the average monthly benefit is expected to be $1,341 per month for retired workers and $2,212 monthly for retired couples who are both receiving benefits.
People ages 65 and younger who work and claim Social Security payments at the same time have a Social Security earnings limit of $15,720 in 2016. Those earning more will have $1 in benefits temporarily withheld for every $2 in earnings above the limit. The earnings limit rises to $41,880 for people who will turn 66 in 2016. Those earning more will have $1 in benefits temporarily withheld for every $3 in earnings above the limit. The earnings limit no longer applies once a retiree turns 66 in 2016.
Social Security Withholdings
The 2016 social security wage base is unchanged from 2015, remaining at $118,500. Earnings above this amount are not subject to the Social Security portion of the payroll tax or used to calculate retirement payouts. The maximum social security tax employees and employers will each pay in 2016 is also unchanged from 2015 and will remain at $7,347. In 2016, the maximum Social Security tax for a self-employed individual will be $14,694.
All covered wages are subject to the 1.45 percent Medicare tax and there is no limit to the wages subject to the tax. Employee wages in excess of $200,000 will be subject to an extra 0.9 percent Medicare tax.
Combined Tax Rates
The 2016 FICA tax rate (the combined Social Security tax rate and the Medicare tax rate) is 7.65 percent for 2016, up to the Social Security wage base. The self-employment tax rate will be 15.3 percent, up to the Social Security wage base.
The threshold for coverage under Social Security and Medicare for domestic employees is rising to $2,000 in 2016 from $1,900 in 2015. For election workers, the coverage threshold increases to $1,700 in 2016 from $1,600 in 2015.