Social Security COLAs for 2012: Take the Bad with the Good
by AccountingWEB on
By Ken Berry
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.
You may like these other stories...
Tax accounting to be simplified for money-market fundsThe US Securities and Exchange Commission (SEC) voted 3-2 on Wednesday for sweeping changes to institutional money-market funds, Emily Chasan, senior editor of...
Read more from Larry Perry here and in the Today's World of Audits archive.AU-C Section 800, Special Considerations—Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks, paragraph ....
FASB mulling a revamped income statementDavid M. Katz of CFO wrote on Tuesday that the Financial Accounting Standards Board (FASB) is in the early stages of researching whether to launch a project aimed at improving and...
Upcoming CPE Webinars
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
FRF for SMEs Series--Measurement and Disclosure Principles for various Consolidations and Business Combinations, Part 4B
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
In this session we'll review best practices for how to generate interest in your firm’s services.