Unemployment Insurance/Social Security
Visit us at the new www.wklawbusiness.com for all legal, business and health care products and services from Wolters Kluwer Law & Business
Ever have unemployment insurance questions and have no one to turn to? Get up-to-date information pertaining to unemployment and social security with CCH. We have a dedicated and reliable staff that works hard to keep all information current.
2014 OASDI tax and earnings base is $117,000; COLA is 1.5%
Social Security beneficiaries will see a small 1.5% increase in their monthly checks in 2014. This cost-of-living adjustment, or COLA, will produce an estimated average monthly benefit of $1,294 for all retired workers in 2014, $19 a month more than in 2013. The COLA increase will be applied to this coming year's benefits, beginning with benefits for December 2013, which are payable in January 2014.
The amount of earnings subject to taxation under FICA and SECA, the "wage base," is also going up in 2014. The 2014 wage base of $117,000 is $3,300 higher than the 2013 amount of $113,700.
The benefit and wage base increases for 2014 were announced October 30 by the Social Security Administration in a press release.
Tax increase appears in FICA tax deducted from individuals’ paychecks
The tax increase will show up in the FICA tax deducted from the paychecks of those individuals earning above the 2013 wage base of $113,700. Although the tax rate for the Old-Age, Survivors and Disability Insurance (OASDI) portion of the tax under the FICA has held steady at 6.2% since 1990, the amount of wages subject to the tax increases each year based on increases in the national average wage.
The $117,000 earnings base for 2014, which applies only to the 6.2% OASDI portion of the Social Security tax, could result in a FICA tax increase of as much as $204.60 for employees (and their employers) whose earnings exceed the 2013 tax and earnings base of $113,700. Self-employed individuals may owe as much as $409.20 in additional self-employment (SECA) tax in 2014 since they also must pay the "employer" portion of the taxes. However, they can recoup some of this amount through a deduction on their federal income tax return. There is no limit on the amount of earnings subject to the 1.45% Medicare (hospital insurance) portion of the tax.
About 10 million workers out of a total of approximately 165 million workers who will pay Social Security taxes in 2014 are affected by the higher wage base for 2014, according to the SSA.
No change in tax rates
The employee/employer Social Security tax rate remains at 7.65% for 2014, 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.
Change in CPI-W drives increase amount
The cost-of-living increase of 1.5% will begin with Social Security checks that are received in January 2014. (Increased payments to more than 8 million Supplemental Security Income beneficiaries, however, will begin on December 31, 2013).
The 1.5% increase is based on the rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of 2012 through the third quarter of 2013. The CPI-W reflects cost increases for wage earners and thus excludes the impact of cost increases on higher income earning self-employed professionals and business owners.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.2% over the last 12 months to an index level of 234.149; this was the smallest 12-month increase since April. The index for all items less food and energy has risen 1.7% over the last year with the shelter and medical care indexes both up 2.4%. The food index has risen 1.4%, while the energy index has declined 3.1%. The CPI-W increased 1.0% over the last 12 months to an index level of 230.537.
Retired worker's average monthly benefit becomes $1,294
For Social Security beneficiaries, the average monthly benefit (prior to deduction for the Part B Medicare premium) for all retired workers will rise to $1,294 in 2014, up from the average benefit of $1,275 paid one year earlier. The maximum Supplemental Security Income (SSI) monthly benefit for an individual will rise to $721, up from $710, and the maximum SSI payment to a couple will rise to $1,082, up from $1,066.
Domestic employee and election worker coverage
For 2014, there is an increase of $100 in the amount of wages a domestic worker may earn without being subject to FICA taxes. An employer may pay a domestic worker, such as a maid or a nanny, up to $1,900 in 2014 without having to wrestle with federal withholding on wages. The threshold for election workers, however, remains at $1,600.
Age 65 birthday celebrants in 2014 required to wait until 2015 for full benefits
Workers who attain age 65 in 2014 will have to wait until 2015 to retire if they wish to receive their full retirement benefit. A gradual rise in the full retirement age began in 2000 resulting from the 1983 amendments to the Social Security Act, which increased the full retirement age from age 65 to age 67. The only individuals attaining full retirement age in 2014 will be individuals attaining age 66, i.e., individuals born January 2, 1948, through January 1, 1949. For such individuals, the maximum possible monthly benefit is $2,642.
Full retirement age will remain at age 66 for the next seven years for individuals born January 2, 1943, through January 1, 1955.
Reduced benefits for early retirees and the “break-even” age
Workers may retire as early as age 62, but they will receive a reduced benefit if they do. The full retirement age of 66, for those workers reaching age 62 in 2014, is also based on the 1983 amendments. The practical effect of this change is to slightly decrease the amount of early retirement benefits payable to individuals who reach age 62 in 2014 by increasing the reduction amount in the benefit formulas by 5/12 of 1.0% of an individual's primary insurance amount (PIA) for each additional month of retirement beyond 36 months. This process is explained more fully in the Unemployment Insurance Reporter with Social Security at ¶12,305 in the "Social Security: Benefits Explained" division. PIAs are explained at ¶12,210 and ¶12,211 in the same division.
Increases for other beneficiaries
For an aged couple, both receiving benefits, the average monthly Social Security benefit becomes $2,111 (up from the average benefit of $2,080 paid when last year's increase took effect in December 2013). For a widowed mother and two children, the average monthly benefit becomes $2,622 (up from $2,583). For an aged widow or widower living alone, the average monthly benefit becomes $1,243 (up from $1,225) and for a disabled worker with a spouse and one or more children, the average monthly benefit becomes $1,943 (up from $1,914). The average monthly benefit for all disabled workers becomes $1,148 (up from $1,131). All of these benefit amounts assume steady earnings since age 22 and no earnings prior to that point.
Benefit computation formula changes
The bend points used in the computations of the PIA for workers who first become eligible to receive a benefit in 2014, or who die in 2014 before becoming eligible, will be $816 and $4,917, respectively. The 2014 eligibility year PIA formula, which is based on the worker's average indexed monthly earnings (AIME) throughout his or her career, thus will be 90% of the first $816 of AIME, plus 32% of AIME over $816 through $4,917, plus 15% of any AIME in excess of $4,917.
Maximum family benefit increases
The maximum family benefit in cases involving workers who first attain age 62, become disabled or die in 2014 will be computed as 150% of the first $1,042 of the worker's PIA, plus 272% of the worker's PIA over $1,042 through $1,505, plus 134% of the worker's PIA over $1,505 through $1,962, plus 175% of the PIA in excess of $1,962.
The amount of monthly earnings in 2014 that will give rise to a presumption that a disability beneficiary is no longer disabled, that is, the amount that is deemed sufficient to demonstrate an ability to engage in "substantial gainful activity" is $1,070, an increase of $30 from 2013. A higher threshold of $1,800 will apply to blind beneficiaries in 2014. Disability beneficiaries may work for as many as nine months during any 60-month period without affecting their right to receive benefits. This is known as "trial work." In 2014, a disabled beneficiary who works will not be treated as having engaged in trial work for any month in which his or her earnings are no more than $770, an increase of $20 over the 2013 limit.
There is no trial work period for Supplemental Security Income (SSI) disability beneficiaries. However, if an SSI beneficiary is working, has only earnings, and does not pay expenses in order to work, he or she may earn up to $1,527 per month in 2014 before SSI federal cash benefits stop. In 2013, an individual could earn up to $1,505. This amount is based on an exclusion of the first $85 of monthly earned income (assuming the person has no other income) plus a monthly deduction of $1 for every $2 earned thereafter. SSI beneficiaries in states that provide a supplement to the federal SSI benefit can earn even more before cash payments stop. However, if an individual has earnings of $1,070 or more in 2014, then the individual would be considered to be engaging in "substantial gainful activity" and would probably not be eligible for SSI disability benefits unless he or she is blind. Note that the SSI student exclusion is $7,060 per year in 2014.
Miscellaneous additional changes
The amount of earnings required for a quarter of Social Security coverage in 2014 increases to $1,200, up from $1,160 in 2013.
The national average wage index for 2012 (most recent available) is $44,321.67. The index is 3.12% higher than that of 2011.
The “old-law” contribution and benefit base increases from $84,300 in 2013 to $87,000 in 2014.
The fees for services performed by a representative payee increase to $40 and $77 in 2014, up from $39 and $76 in 2013.
Retirement test amounts rise
The amounts that Social Security beneficiaries can earn without having their retirement benefits reduced also will go up next year.
Although the Senior Citizens' Freedom to Work Act of 2000 eliminated the annual earnings test as of January 2000 for workers between full retirement age (age 66 in 2014 for workers who attained age 65 in 2013) and age 69, workers under the full retirement age of 66 who are receiving benefits remain subject to the test and can earn up to $15,480 in 2014, or $1,290 per month, without having their benefits reduced. This is an inflation-adjusted increase of $360 over the 2013 annual limit. One dollar in benefits is withheld for every $2 in earnings above the limit.
A modified test applies to a worker in the year that he or she reaches full retirement age. Thus, workers who reach age 66 in 2014 may earn up to $41,400 in the months preceding the attainment of full retirement age without having their benefits reduced. This is a moderate increase over the 2013 annual limit of $40,080. One dollar in benefits is withheld for every $3 in earnings above the limit. Once an individual reaches full retirement age, benefits are no longer subject to any retirement test. Beneficiaries age 70 and older have not been subject to benefit reductions based on earnings since 1983.
Medicare deductibles, premiums in 2014
For 2014, the Part A deductible is $1,216; the Part B annual deductible is $147; and the Part B monthly standard premium is $104.90.
Official notice to appear in Federal Register
The Social Security Administration's official publication of the formula adjustments, cost-of-living increases, and tax and wage bases that will affect Social Security benefit computations in 2014 and its explanations of how the adjustments are calculated will appear in the Federal Register
Unemployment Insurance/Social Security News & Information
Social Security Benefits Including Medicare, 2013 Edition
Provides a concise but meaningful explanation of the Social Security retirement, survivors, and disability benefits programs. Learn More »
Summary of Law Updates
Looking for State Employment Law Updates?
Check out our State Employment Law Library. Click here for more information.