News & Information

 

FEATURED PRODUCT

American Payroll Association (APA) Basic Guide to Payroll, 2013 Edition
It's more important than ever to be in compliance with payroll laws and regulations! How do you stay in compliance and avoid penalties? The APA Basic Guide to Payroll is written to make understanding the laws and regulations as easy as possible. And this single-volume guide is filled with tools to help you apply the law and make proper calculations – with ease!

Learn More »

CCH® PAYROLL — 10/29/10

No increase in benefits or wage base again for 2011

For the second year in a row, Social Security beneficiaries will not receive a cost-of-living benefit increase. The absence of an increase for 2011 is no surprise; it was anticipated in both the 2009 and 2010 reports of the Board of Trustees for the Social Security Trust Funds and has been widely reported by the popular press in the weeks leading up to the Social Security Administration’s official announcement on October 15. The lack of any increase is the result of a 2.1% decline in the Consumer Price Index (CPI) from the third quarter of 2008 to the third quarter of 2009, and the absence of an increase over the past year that “catches up” to where the CPI was at its high point in the third quarter of 2008. The increase from the third quarter of 2009 to the third quarter of 2010 was only 1.5%. The past two years have been the only years in which there has been no COLA increase since 1975, when Social Security benefits became indexed to increases in the Consumer Price Index.

Following the official announcement that there would be no COLA for 2011, President Barack Obama renewed his call for a $250 Economic Recovery Payment to seniors this year, as well as to veterans and people with disabilities. Although Speaker Pelosi has indicated she will bring the new Economic Recovery Payment to a vote, if it does happen, it will not be soon since Congress is now in recess.

As explained more fully below, the lack of a COLA for 2011 also means that there will be no increase in the amount of wages subject to taxation under FICA for wage earners and under SECA for the self-employed. A number of other program amounts will remain the same for 2011, as they did for 2010, also because there is no COLA for 2011. Some of these program amounts are directly indexed to the cost of living, while others are annually adjusted based on the increase in the national average wage index, but only if there is also a cost-of-living increase for benefits that year.

Program amounts that change based on a cost-of-living increase:

• The Federal Supplemental Security Income (SSI) monthly benefit amounts for 2011, under Title XVI of the Social Security Act (Act), will remain $674 for an eligible individual, $1,011 for an eligible individual with an eligible spouse, and $338 for an essential person;
• The special benefit amount under Title VIII of the Act for certain World War II veterans will remain $505.50 in 2011;
• The student earned income exclusion under Title XVI of the Act will remain $1,640 per month in 2011 but not more than $6,600 in all of 2011;
• The dollar fee limit for services performed as a representative payee will remain $37 per month ($72 per month in the case of a beneficiary who is disabled and has an alcoholism or drug addiction condition that leaves him or her incapable of managing benefits) in 2011; and
• The dollar limit on the administrative-cost assessment charged to attorneys representing claimants will remain $83 in 2011.

Program amounts that change based on increase in national average wages, but only when there is a COLA:

• The contribution and benefit base will remain $106,800 for 2011;
• The monthly exempt amounts under the Social Security retirement earnings test for taxable years ending in calendar year 2011 will remain $1,180 and $3,140;
• The “old-law” contribution and benefit base under Title II of the Act will remain $79,200 for 2011; and
• The monthly amount deemed to constitute substantial gainful activity for statutorily blind individuals in 2011 will remain $1,640.

A number of other Social Security program amounts, however, are affected by the national average wage index, which decreased from $41,334.97 in 2008 to $40,934.93 for 2009. Items subject to change based on changes in the national average wage index are as listed below. However, by law, except for the first two items below, these amounts will be unchanged in 2011 because there was a decrease in the national average wage index for 2009:

• The dollar amounts (“bend points”) used in the primary insurance amount (PIA) benefit formula for workers who become eligible for benefits, or who die before becoming eligible, in 2011 will be $753 and $4,542;
• The bend points used in the formula for computing maximum family benefits for workers who become eligible for benefits, or who die before becoming eligible, in 2011 will be $963, $1,390, and $1,812;
• The amount of taxable earnings a person must have to be credited with a quarter of coverage in 2011 remains at $1,120;
• The monthly amount deemed to constitute substantial gainful activity for non-blind disabled persons remains at $1,000 in 2011;
• The earnings threshold establishing a month as a part of a trial work period remains at $720 for 2011; and
• Coverage thresholds for 2011 remain at $1,700 for domestic workers and $1,500 for election officials and election workers.

No COLA due to low CPI-W

The Act provides for a cost-of-living adjustment, or COLA, based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the third quarter of the following year, but only if the adjustment is a positive one (Act §215(i)). The average CPI-W for the third quarter of 2008 was 215.495, but it fell to 211.001 for the third quarter of 2009. In order for an increase to occur, the index must first make up for this decline and then rise above 215.495. This scenario is not expected to happen until later this year. There was an increase over the past four quarters (1.5%), but it was not sufficient to make up for the 2.1% decline from 2008 to 2009. The average CPI-W for the third quarter of 2010 was only 214.136.

Average benefit paid up slightly for 2011

The average Social Security retirement benefit paid to all retired workers as of the end of September 2010 was $1,172. The average retirement benefit awarded to new claimants for the same period was $1,182. Any increase in the average benefit over the next year will come about only because benefits paid to beneficiaries first becoming eligible for retirement benefits will reflect slightly higher average indexed lifetime earnings. The current average benefit of $1,172 is only slightly higher than the average benefit of $1,164 for December 2009 that was payable in January 2010.

No change in tax rates

The employee/employer Social Security tax rate remains at 7.65% for 2011, including 6.2% for the OASDI portion and 1.45% for the hospital insurance portion. For the self-employed, the rate continues to be 15.3%. Note that self-employed persons calculate their net earnings as gross earnings reduced by 7.65%, and they deduct half of their Social Security taxes from their net earnings for federal income tax purposes.

Domestic employee and election worker coverage

For 2011 the amount of wages a domestic worker can earn without being subject to FICA taxes remains at the 2010 level of $1,700. This amount has nothing to do with the absence of a COLA for 2011. Rather, the threshold amounts are based on a statutory formula that takes into account annual changes in national average wages. Although national average wages have gone down, by law the threshold amounts remain unchanged when there is a decline in national average wages. An employer can therefore pay a domestic worker, such as a maid or nanny, up to $1,700 in 2011 without having to wrestle with federal withholding on wages.

Similarly, there is no increase or decrease in the no-tax threshold for election workers. The amount of wages they can earn before being subject to FICA remains at $1,500 for 2011.

For more information on this and other topics, consult the Visit our News Library.

Visit our News Library to read more news stories.