Every new year brings changes and for 2018 the Federal Government has made changes to Social Security and Medicare. Surprise, surprise! Some retirees get a raise. Some workers will see more come out of their checks for future benefits. And most Medicare recipients will pay more for health care.

First, the good news. For the first time in almost three years, retirees get a raise from Social Security. The cost-of-living increase is 2%. The average increase for a single person is $27/month and a couple will see an extra $46/month.

But before you get too excited thinking about where to spend all that extra money, the Government has made the decision for you. Most of the COLA increase disappears before you see it because Medicare Part B premiums are going up. In 2018 the premium increases to $134/month, up $25 from last year. And if you fall into the higher income category, defined as individuals with modified adjusted gross income higher than $85,000 or couples earning more than $170,000, the premium goes up to $187.50/month. Depending on income, the Part B premium could go as high as $428.60.

If you are a higher income earner it will also affect what you pay for Part D drug coverage.  The higher income earner limits are the same as for Part B. If you are in that category you will pay your Part D premium plus $13/month. The maximum additional monthly premium for higher income retirees is $74.80.

If you’re still working and paying into the Social Security system, the Government hasn’t forgotten you either. The amount of earnings subject to Social Security payroll tax increases by $17,040. That means in 2018 you will now pay Social Security taxes on income up to $128,700.

For individuals younger than full retirement age who draw social security and continue working, the Government allows you to earn a little more in 2018 before taking back part of your check. The amount goes up by $120/month to $17,040. Once you cross your full retirement age the earnings restrictions go away.

The one thing that hasn’t changed—Social Security benefits are still taxable using the same formula that’s been on the books: adjusted gross income, plus any tax-exempt interest, plus half of your Social Security benefits equals your combined income.

For individuals whose combined income falls between $25,000 and $34,000, 50% of benefits are taxable. When combined income exceeds $34,000 you pay taxes on $85% of the benefit.

Married couples whose combined incomes are between $32,000 and $44,000 pay taxes on half their Social Security. Above $44,000, 85% of Social Security becomes taxable.

So, that’s the hand you’ve been dealt for 2018. Use the information well, and as our favorite Vulcan, Mr. Spock would say, “Live long and prosper.”

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