2021 vs 2020 Cost of Living Adjustment (COLA), Social Security and Medicare Tax Rates

[2021 COLA increase] The Social Security Administration (SSA) officially confirmed a 1.3% COLA increase in 2021. For the average retiree that is a $20 raise from 2020 levels ($1,523 p/month). The 1.3% COLA is the smallest since 2017 and slightly below the 1.4% average over the past decade. See the table below for other items impacted by the COLA adjustment and other year-over-year changes

Other notable items

  • The maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $142,800. Above this income limit, no SS taxes will be levied
  • The maximum SS benefit goes to $3,148, with the average (across all workers) forecasted to rise to $1,543.
  • No change to the social security tax rates

Social Security Item
202120202019
Increase over previous year1.3%1.6%2.8%
Maximum taxable earnings (wage base) subject to social security taxes$142,800137,700$132,900
Maximum social security benefit (per month)$3,148$3,011$2,861
Estimated average monthly social security benefit (all workers)$1,543$1,503$1,459
Self-Employed social security tax rate15.30%15.30%15.30%
Employee social security tax rate (deducted from your paycheck)7.65%7.65%7.65%

The COLA increase is based on the percentage increase (if any) in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the current year over the average for the third quarter of the previous year in which a COLA became effective. The government, via the BLS, publishes the official annual cost-of-living adjustments typically in late October, with changes to social security, retiree benefits and medicare effective for the subsequent year.

The social security tax rate above is the combined rate for Social Security and Medicare. For employees the employer pays half the social security tax, whereas for self employed they have to pay both the employee and employer components and hence the higher tax rate.

Once a worker passes the maximum taxable earnings (or social security wage base) then all earnings above that amount are NOT subject to social security taxes.

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[2018 COLA Increase] The Social Security Administration (SSA) has announced a relatively large 2% Cost of Living Adjustment (COLA) for 2018. Benefits like Social Security or Supplemental Security income, that are tied to COLA will reflect the 2% increase in January 2018. The increase is equivalent to about $27 more a month or $329 a year for the average retired worker getting social security payments. 

Based on 2% increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) has also increased to $128,700. This will result in approximately 7% to 8% of workers (~12 million people) paying more in Social Security taxes in 2018.

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[2017 COLA Confirmed] Despite fears that there would not be a Cost of Living Adjustment (COLA) increase in 2017, the Social Security Administration (SSA) announced that benefits will in fact increase by 0.3% in January 2017. Over 65 million Americans who receive Social Security benefits or Supplemental Security Income payments will benefit from this increase. This is following a year (2016) where no increase was provided. The table below shows recent COLA changes and associated updates.

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[2016 COLA update] As expected the 2016 Cost of living adjustment (COLA) was 0%, meaning that no changes to your social security taxes and benefits next year. Details over 2015 levels are shown in the table below.

*A decrease in full maximum benefits occurs when there is no COLA, but there is an increase in the national average wage index.

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The Social Social Administration (SSA) announced a 1.7 percent cost of living adjustment (COLA) for 2015 (vs 1.5% in 2014). As a result the following changes, shown in the table above, to your social security taxes and income will result. All changes will take effect in January.

The main impact to tax payers will be an increase in earnings subject to the Social Security tax , which increase to $118,500 from $117,000 in 2014. The SSA estimates that this will impact 8% or 10 million off the approximately 165 million workers who will pay Social Security taxes.

Source: Social Security Administration (socialsecurity.gov)

This article was updated on October 14

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3 thoughts on “2021 vs 2020 Cost of Living Adjustment (COLA), Social Security and Medicare Tax Rates

  1. If No COLA in 2017 Why did the house just pass this: House Passes the Veterans’ Compensation COLA Act of 2016
    Veterans’ pensions and disability benefits are historically adjusted each year, upon Congressional approval, to reflect a cost-of-living adjustment (COLA) equal to the COLA for Social Security benefits. To that end, last week, the House passed H.R.5588, the Veterans’ Compensation COLA Act of 2016. Specifically, this bill would increase the rates of compensation for veterans with service-connected disabilities and the rates of dependency and indemnity compensation for the survivors of disabled veterans effective December 1, 2016. This legislation would provide for the same percentage increase made available by the Social Security Act. Our servicemembers and their families make many sacrifices for our freedoms and the Veterans’ Compensation COLA Act is one way of expressing appreciation for their service and sacrifices.

    1. The COLA is determined by the SSA in October. The bill just links the Veterans comp increase to that rather than having Congress to approve an increase every year. But if no COLA increase then the veterans comp won’t see an increase either. But this bill is a move in the right direction as it removes the dependency on Congress to pass a raise every year.

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