In his chapters on taxation of Social Security benefits and Medicare contributions, Sarenski helps the reader navigate the thicket of provisional income, quarterly estimated tax payments and income thresholds.
As of 2013, high earners (more than $200,000 for individuals; more than $250,000 for joint filers) pay another 0.9% in Medicare payroll tax, bringing their share to 2.35% of their wages.
“Note that the tax applies to earned income more than the income thresholds, rather than to adjusted gross income.’’
As of 2020, earnings of up to $137,700 are taxed at 6.2 percent for the non-Medicare element of Social Security (retirement, survivor or disability benefits).
Sarenski provides sample tax scenarios that can reduce tax burdens, such as the single, non-working tax filer who was able to reduce a Medicare contribution tax on $2 million in net unearned income by applying the $200,000 single taxpayer threshold.
Sarenski says that money deducted from Social Security retirement benefits when a worker has earned income over the limit, is returned when the worker reaches full retirement age. The benefits are recalculated to provide a credit for the reduced benefits.
The chapter on the future of Social Security and Medicare says that in 1950, 16.5 workers paid in retirement benefits for each retiree; by the year 2030, “the ratio will be approaching only two workers paying in retirement benefits for each retiree.’’
A large baby boom population in retirement, lower birth rates producing fewer workers to pay for benefits and growth in Medicare beneficiary expenditures exceeding growth in per capita GDP, demand action be taken. Sarenski says legislation to avoid shortfalls for beneficiaries is needed urgently. He includes 10 proposals currently under consideration.
“No doubt, the future of Social Security will continue to be a major political and social issue.’’
Social Security and Medicare: Maximizing Retirement Benefits by Theodore J. Sarenski. Wiley. $97.
Eleanor O’Sullivan is an award-winning journalist who writes for Financial Advisor.