the 2021 cost-of-living adjustment for Social Security and SSI recipients
The 1.3% bump for 2021 is lower, by 0.3% than last year’s 1.6% COLA. For the average Social Security recipient, the 1.3% raise amounts to a $20 per month increase, raising the average monthly payout to $1,543 for 2021 from $1,523 in 2020.
- Social Security and SSI recipients will see a 1.3% cost-of-living adjustment for 2021.
- The average increase will be $20 per month per recipient.
- Maximum earnings subject to the Social Security tax will increase to $142,800 from $137,700.
- Earnings limits for working recipients increased.
- Notification of your new benefit amount will take place in early December.
The annual COLA adjustment, which is designed to help benefits keep pace with inflation, is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as calculated by the Bureau of Labor Statistics (BLS). If the CPI-W increases more than 0.1% year-over-year between the third quarter of the previous year and the third quarter of the current year, Social Security will raise benefits by the same amount. The exact calculation is complicated and may result in a new benefit amount that is slightly different from the amount you get by multiplying the new COLA by your current benefit amount.
Increase in Maximum Earnings Subject to SS Tax
For 2021, you will pay a 6.2% Social Security tax (your employer matches that) on income up to $142,800. In 2020, you are only required to pay taxes on income up to $137,700. Any earnings above those amounts are not subject to tax.
The Social Security tax rate of 6.2% is the same as in 2020. If you are self-employed you must pay the full 12.4% on your net earnings. As the maximum income subject to taxes increases, the maximum benefit also increases. For 2020, the maximum benefit was $3,011 and for 2021 it will be $3,148.
Earnings Limits Are Increased
If you receive Social Security benefits but still work, all or part of your benefits may be temporarily withheld, depending on how much you earn, until you reach full retirement age. The limits on how much you can earn have increased slightly for 2021.
Before reaching full retirement age, you will be able to earn up to $18,960 in 2021. After that, $1 will be deducted from your payment for every $2 that exceeds the limit. The 2021 annual limit represents a $720 increase over the 2020 limit of $18,240.
If you reach full retirement age in 2021, you will be able to earn $50,520, up $1,920 from the 2020 limit of $48,600. For every $3 you earn over the 2020 limit, your Social Security benefits will be reduced by $1, but that will only apply to money earned in the months before hitting full retirement age. Once you reach full retirement age, no benefits will be withheld if you continue working, no matter how much you earn.
Notification of Benefit Amount
You should receive notification from Social Security indicating your new benefit amount in early December. Most recipients can also view their COLA notice online through their personal My Social Security account. To create or access your account: Click on www.socialsecurity.gov/myaccount.
Social Security cannot calculate your new benefit amount until Medicare premium amounts are announced.
Information about Medicare changes for 2021, will be available at www.medicare.gov when they are announced. If you are a Social Security or SSI beneficiary receiving Medicare, Social Security will not be able to compute your new benefit amount until after the Medicare premium amounts for 2021 are made public.