No Cost of Living Increase
November 1, 2010
Because inflation has been very low over the last year, it has been announced that a cost of living increase will not be applied to Social Security payments for 2011. For most recipients, this means their monthly check will stay the same. But for some the net amount received could be less.
Cost of living adjustments (COLA) for Social Security and Supplemental Security Income benefits started in 1972. An adjustment based on the change in the Consumer Price Index has been made every year except two...2010 and now 2011.
Social Security benefits may remain unchanged, but what happens if Medicare premiums increase?
Impact of Medicare Premium
For those who qualify, the premium for Medicare Part B is deducted directly from the recipient’s monthly Social Security check. The Department of Health and Human Services determines the premium amount and has not yet announced the change for 2011.
Some Receive Same Amount. In the past, if the Medicare Part B premium goes up more than the COLA for Social Security, the increased premium is not passed along. In other words, even if the premium for Medicare Part B increases in 2011, most recipients will continue to receive the same net Social Security benefit that was received in 2010. This applies to about 70% of today’s recipients.
Some May Get Less. Net Social Security could be reduced for the remaining 30%. Since 2007, those with higher incomes are subject to income-adjusted Part B premiums. The higher premium amounts are based on the tax filing status and the modified adjusted gross income of the individual as reported on their income tax return from two years prior. For example, the 2011 premium is based on 2009 income. (The income information for year 2009 is the most recent available due to the lag in filing tax returns and the filing extensions available.) The information applicable to 2011 is not yet available, but joint taxpayers with more than $170,000 (single payers with more than $85,000) in 2010 were required to pay a higher Part B premium. Given the continued rising cost of medical services, it is very likely that the Part B premium will be increased and that this group of Social Security recipients will receive a smaller check in 2011.
No COLA for Retirement Plan Contributions
In addition to keeping Social Security benefits at the 2010 level, many retirement plan contribution maximums will also remain the same.
- Traditional IRA and Roth IRA: The maximum contribution for 2011 remains at $5,000 for those under and $6,000 for those over the age of 50 years.
- 401(k) and 403(b) plans: $16,500 remains the maximum for those under age 50. The catch-up provision allows those over age 50 to contribute an addition amount up to $5,500 ($22,000 total).
- SIMPLE plans: The employee maximum remains $11,500 with a catch-up for those over age 50 of $2,500 ($14,000 total).
- SEP plans: The maximum annual compensation used to calculate the amount that can be contributed remains at $245,000 for 2011.
No Change in Annual Gift Exclusion
The amount that can be gifted to others without being subject to the gift tax remains at $13,000 for 2011. This means that you can gift up to $13,000 ($26,000 with a spouse) to as many individuals as you would like without consideration of gift taxes.
Summary
The IRS has yet to provide the personal income tax tables for 2011. They are waiting for Congress to decide whether to extend or increase the 2010 income tax rates. Look for more information to follow!
