The Social Security Administration announced today that the Maximum Taxable Earnings or Social Security Wage Base would increase from $106,800 in 2011 to $110,100 in 2012.
Social Security Increases Based on CPI Change
Since there was a 3.6% increase in the Consumer Price Index (CPI-W) from the third quarter of 2010 to the third quarter of 2011, the Social Security Wage Base will also increase by 3.6%. This is the first increase in the Social Security Wage base since 2009. Wages are scheduled to be taxed at 6.2%, so the maximum tax to be paid by each employee at that rate would be $6,826.20. There are proposals to keep the current rate of 4.2% for employees or to reduce it to 3.1%, but none has passed at this time. About 7% of workers who pay Social Security Tax are expected to reach the maximum in 2012.
Retirement Earnings Test Exempt Amounts Increase for 2012
For workers under full retirement age who are receiving Social Security benefits, $1 in benefits is withheld for every $2 above the Retirement Earnings Test Exempt Amount of $14,160 per year or $1,180 per month in 2011. This will increase to $14,640 per year or $1,220 per month for 2012. The year an individual reaches full retirement age, $1 in benefits is withheld for every $3 above the Retirement Earnings Test Exempt Amount of $37,680 per year or $3,140 per month in 2011. This will increase to $38,880 per year or $3,240 per month for 2012. The month an individual reaches full retirement age there is no limit on earnings.
Quarter of Coverage Amounts Increases to $1,130
Also increasing for 2012 is that amount needed to earn a Social Security credit, formerly known as a quarter of coverage. In 2011, a credit is earned for every $1,120 of earnings, up to a maximum of four credits. That amount will increase to $1,130 for 2012.
Social Security Monthly Benefits to Increase in January 2012
The maximum benefit for a worker retiring at full retirement age is also increasing from $2,366 to $2,513. See the table below for other changes in Social Security benefits for 2012.
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