Every year, the Social Security Administration announces certain changes in program amounts that occur automatically (i.e., without legislation being necessary). The most widely publicized of these changes is the annual cost-of-living adjustment (COLA) affecting Social Security benefits. Other changes are important to people of working age as well as to beneficiaries. The December 2007 COLA and other changes that will become effective in January 2008 were announced by the government on October 17, 2007. Benefit Increase
Since 1984, Social Security's cost-of-living benefit increases have been based on the 3rd-quarter-to-3rd-quarter change in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W, which is computed by the U.S. Labor Department's Bureau of Labor Statistics, rose 2.3 percent from the 3rd quarter of 2006 through the 3rd quarter of 2007; accordingly, Social Security benefits will rise by the same percentage. The 2007 increase is effective with Social Security benefit payments for December 2007. Most of the December 2007 benefits will be paid on January 3, 2008, with the remainder paid later in that same month. Maximum Taxable Amount and Tax Rates Other automatic Social Security changes, which were announced simultaneously with the benefit increase, are based on changes in the national average wage, which the Social Security Administration computes. One very important change that affects workers is the increase in the maximum amount of earnings subject to the Social Security payroll tax. The maximum taxable amount will rise from $97,500 in 2007 to $102,000 in 2008. The Social Security tax rate is not automatically adjusted and remains 6.2 percent, payable by employees and employers, each. (The self-employed pay both halves of this tax.) Since 1994, the Medicare tax applies to all earnings without any limit; the Medicare tax rate for 2008 remains 1.45 percent for employers and employees, each. Retirement Earnings Test
Another wage-indexed Social Security program amount is the exempt amount under the retirement earnings test for beneficiaries who have not reached their normal retirement age. (Social Security's normal retirement age is 65 for workers born before 1938 and rises gradually to 67 for workers born after 1959.) The annual exempt amount for beneficiaries who will not reach their normal retirement age during the year will rise from $12,960 for 2007 to $13,560 for 2008. For beneficiaries who reach normal retirement age in 2008, the exempt amount is $36,120 for earnings in the months before reaching normal retirement age. Since January 2000, workers who have reached their normal retirement age under Social Security can earn unlimited amounts without causing any reduction in their Social Security benefits. Coverage Credits
The amount of earnings needed to receive one coverage credit for the year will rise from $1000 in 2007 to $1050 in 2008. Workers who earn at least $4200 in Social Security-covered employment (or self-employment) during 2008 will receive the maximum four coverage credits for the year. (These coverage credits used to be known as "quarters of coverage"; since 1978, they have been granted on the basis of annual earnings, making the old name inappropriate.) Medicare Changes
The Department of Health and Human Services usually announces the annual changes affecting Medicare at about the same time as the Social Security announcement. Certain Medicare program amounts change automatically every year, based on changes in the program's costs (i.e., not based on changes in either the CPI or the national average wage). The inpatient hospital deductible per "benefit period" will rise from $992 in 2007 to $1024 in 2008. The daily coinsurance amount for days 61-90 of hospitalization during any benefit period will rise from $248 to $256. The coinsurance amount for each of 60 "lifetime reserve" days will rise from $496 to $512. The daily coinsurance amount for days 21-100 in a skilled nursing facility (SNF) during any benefit period will rise from $124 to $128.
The standard monthly premium for Medicare Part B (Supplementary Medical Insurance, which pays part of the cost of doctors' bills and outpatient care) will rise from $93.50 in 2007 to $96.40 in 2008. The vast majority of enrollees pay the standard premium, which is intended to cover 25 percent of the costs of the Part B program. A provision of the Medicare Modernization Act requires high-income enrollees to pay higher monthly premiums, starting in 2007. The purpose of this provision is to reduce the general-revenue subsidy that these enrollees would otherwise receive. In 2008, additional premiums are payable by enrollees with incomes exceeding $82,000 if single and $164,000 if married and filing a joint tax return. The maximum additional premiums, $142.00 per month, are payable by those with incomes exceeding $205,000 if single and $410,000 if married filing jointly. (Special rules apply to married enrollees filing separate tax returns.) The additional Part B premiums are rising over a 3-year transition period. Part B monthly premiums are ordinarily deducted from enrollees' Social Security benefit payments. The Part B annual deductible will rise from $131 in 2007 to $135 in 2008.
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|Social Security and Medicare Changes for 2008|