Tax reform update and 2018 Social Security Projections

Tax reform update: On Wednesday, Republican legislators released a broad framework of individual and corporate tax changes. The proposal is far from enactment and many details will need to be negotiated.  It is not yet in the form of a bill which is ready to be voted upon, as the proposal is a 9 page PDF.  We will provide more detailed commentary and analysis as it progresses further.

The proposal includes eliminating most itemized deductions except for mortgage interest and charitable contributions and eliminates the Alternative Minimum Tax and Estate tax.  The framework proposes significant corporate tax reductions.

 

2018 Social Security Projections: Social Security recipients are projected to receive at least a 1.8% increase in 2018 benefits, but this could be partially or fully offset by higher Medicare premiums for most recipients. So, there may be no net increase in monthly Social Security payments for most recipients in 2018.

The Social Security Administration will officially announce the changes for 2018 in October, based on inflation figures through September 30th.

The increase in gross benefits would be largest annual COLA change (cost of living allowance) since 2012, as inflation has been very low over the past 5 years.

However, for many high income individuals and couples, they may have no change or even face net reductions in their monthly deposits, due to higher Medicare premium tiers which take effect in 2018.

For 70% of Medicare enrollees who are Social Security recipients, any Medicare insurance premium increase cannot exceed the increase in gross Social Security benefits. Thus, their net benefits may remain the same in 2018.

High income seniors, defined as singles with income over $85,000 and couples with income above $170,000, are not protected by this “hold harmless” provision regarding Medicare insurance premiums exceeding Social Security benefit changes.

There is not any planning which can be done to avoid the impact of the Medicare premium increase, as it is based on past income tax returns.   The Medicare premiums for 2018 are based on your 2016 tax return information.

If you have not yet begun to collect Social Security and are nearing the age which you can begin to collect Social Security (62-70), you may want to contact us to discuss this important decision.

 

This week’s Takeaway: While net Social Security deposits may stay the same or decrease in 2018, these are still vital benefits for nearly all Americans. Annual payments can be $20-40,000, which is the equivalent of withdrawing 4% per year from an account value of $500,000-$1,000,000.

 

 

Source: Investment News, Mary Beth Franklin, September 25, 2017

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