Income up to $118,500 subject to Social Security taxes in 2015. New survey says most want to completely eliminate the FICA salary cap.
Friday, October 24, 2014
It's been a busy week for folks who follow retirement-related numbers.
In addition to the Internal Revenue Service's announcement of 2015 inflation adjustments for various retirement plans, the Social Security Administration released how the cost of living will affect that government benefit and workers who contribute to it.
These annual cost-of-living changes have been a part of the popular government retirement program since 1975.
President Franklin D. Roosevelt signs the Social Security Act on Aug. 14, 1935. Participating in the landmark law's enactment are, standing left to right, Rep. Robert Doughton (D-N.C.); unknown person in shadow; Sen. Robert Wagner (D-N.Y.); Rep. John Dingell (D-Mich.); Rep. Joshua Twing Brooks (D-Pa.); Secretary of Labor Frances Perkins; Sen. Pat Harrison (D-Miss.); and Rep. David Lewis (D-Md.). Photo courtesy Social Security Administration via Wikimedia.
More money for Social Security recipients: First, the good news on pay outs. The nearly 64 million Americans who get monthly Social Security checks will see those payments go up by 1.7 percent in 2015.
That means monthly government retirement payments to the average retired person will rise $22, from $1,306 to $1,328 for an annualized total Social Security benefit of $15,936. An average couple on Social Security will see their benefits increase from $2,140 to $2,176 from $2,140.
More income subject to taxation: Now for those us still making FICA payments.
Most workers pay 6.2 percent out of every paycheck into the Social Security system until they make more than the annual tax cap.
In 2014, that earnings limit was $117,000. In 2015, it's going to $118,500 in 2015.
That means around 10 million of the 168 million workers who pay into Social Security will face higher taxes next year.
Folks who make over the maximum annual cap don't pay Social Security taxes on that excess amount. Of course, those added earnings aren't factored into their future Social Security payments either.
Saving Social Security: As for future Social Security payments, the debate continues over what the system will look like or even still be around in the coming years.
The one thing most folks agree on is that we need to do something to save Social Security.
And a new survey says most Americans favor a phasing out of the salary cap on Social Security as part of plan to ensure the popular program's long-term viability.
"At a time when the nation seems deeply divided about the proper size and role of government, Americans show remarkably widespread agreement on Social Security," says Virginia Reno, Vice President for Income Security Policy at the National Academy of Social Insurance.
Reno is co-author of the new study, Americans Make Hard Choices on Social Security: A Survey with Trade-Off Analysis, conducted by online by NASI and Greenwald & Associates in June.
According to NASI, the survey used trade-off analysis to determine which product features consumers want and are willing to pay for. Survey participants chose among different packages of Social Security changes.
Eliminating taxable salary cap: Seventy percent of survey participants preferred a proposal that would eliminate Social Security's long-term financing gap without cutting benefits.
The preferred package contains a couple of tax provisions that would affect many of us. The highlights include:
- Phase out over 10 years the cap on earnings taxed for Social Security. With this change, the 6 percent of workers who earn more than the cap would pay into Social Security all year, as other workers do. In return, they would get somewhat higher benefits.
- Gradually increase the Social Security tax rate that workers and employers each pay. Over 20 years, it would go from the current payroll tax rate of 6.2 percent of earnings to 7.2 percent. A worker earning $50,000 a year would pay about 50 cents a week more each year, matched by the employer.
- Increase Social Security's cost-of-living adjustment to reflect the inflation experienced by seniors. This would mean that things such as automotive fuel costs, which are not a concern of many in the older non-driving population, wouldn't carry as much weight, while other expenses, such as health care costs that generally rise faster than other inflation, would be considered.
- Raise Social Security's minimum benefit so that a worker who pays into Social Security for 30 years or more can retire at 62 or later and have benefits above the federal poverty line.
Large majorities across major political parties (68 percent of Republicans, 74 percent of Democrats and 73 percent of independents) and income levels (71 percent with incomes above $75,000 and 68 percent with incomes under $35,000) preferred that package, says NASI.
Will you be affected in 2015 by either the bump up for Social Security benefits or the increase to the taxable salary cap? Do you support hiking the FICA payroll tax? What about eliminating the Social Security salary cap?
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