This is always an exciting and busy time of year for me: when the next year's Cost of Living Adjustments and tax-related thresholds for various contribution limits and tax brackets are published. We eagerly update our tax projections and checklists for client conversations and recommendations. And the half dozen software programs that we rely on suddenly have new, updated calculations to explore.
Key updates that are relevant to our clients and us include:
Social Security beneficiaries with see an average "raise" of 5.9% in their January check. Because this 5.9% COLA was applied to your primary insurance amount (PIA) at your Full Retirement Age (FRA) of between 66 and 67 (depending on your birth date), individuals who filed early (i.e., before their full retirement age) won't see their monthly checks from Social Security increase by the full 5.9% COLA. Folks who waited after their FRA (such as to age 70), will see a proportionately larger increase to their benefits and their "delayed credits" also get the boost.
Wages up to $147,000 will have Social Security taxes withheld (equal to 6.20% for both employer and employee). There is no limit for the Medicare tax, which equals 1.45% of income (and if you are both the employer and the employee, you'll pay both parts for a total of 2.90%). In addition, on your tax return, there is a Medicare surcharge of 0.90% on income above $200,000 for individuals (and $250,000 for married couples).
For our retired Federal government clients, those who are CSRS retirees will receive a 5.9% COLA, while enrollees in FERS will see a 4.9% increase. According to the annuity rules, each year, if CSRS sees an increase of under 2%, FERS retirees receive the full COLA. If the adjustment is between 2% and 3%, FERS enrollees only receive a 2% increase. And if the CSRS COLA is 3% or more, as it is next year, FERS retirees receive 1 percentage point less.
An announcement about Medicare’s Part B premium they pay for outpatient care is expected soon. It’s usually an increase, so at least some of any Social Security raise gets eaten up by health care. The Medicare Part B premium is now $148.50 a month, and the Medicare trustees report estimated a $10 increase for 2022.
Medicare enrollment for 2022 opens October 15th. This is the time to assess your Medicare health or drug coverage (Part D) plans to determine if you want to make any change. You can join, switch, or leave a Medicare Advantage Plan or a Medicare drug plan during this open enrollment period each year. New coverage would start in January. The again from January 1 through March 31, 2022, if you are in a Medicare Advantage plan, you can switch to a different Medicare Advantage Plan or switch to original Medicare (and join a separate Medicare drug plan). The 2022 Medicare handbook (all 128 pages) is available on the Medicare.gov website and is full of information about your choices.
IRS rulings on the 2022 retirement plan contribution limits aren't out yet, though it's anticipated that IRA limits will stay the same ($6000 with a $1000 catch up for those 50 and above), while 401K and 403b limits will increase by $1000 (from this year's $19,500 to $20,500) with the $6500 catch up for those 50 and over to remain the same.