This is a really easy way to estimate your Social Security benefits when you retire. Click on http://www.ssa.gov/estimator/ to start.
If you are in good health, have enough money and your parents and other relatives have good longevity, you may want to consider delaying collecting your Social Security benefits as each year you delay collecting your benefits, you will get 8% higher in benefit payment, until you reach age 70. For example, if your benefit at full retirement age of 66 is $1,000 per month, by delaying to age 70, you will get $1,320 per month. At age 68, you will get $1,160 each month for the rest of your life. This is especially beneficial if your spouse will be collecting half of your Social Security.
Tuesday, January 3, 2012
New Tax Provisions for 2012
http:http://www.blogger.com/img/blank.gif//www.journalofaccountancy.com/Web/20114954.htm
By Alistair M. Nevius
With the ringing in of the new year, several new tax provisions took effect. http://www.blogger.com/img/blank.gifhttp://www.blogger.com/img/blank.gifWhile the list of new items does not compare with the number of tax provisions that expired at the end of 2011 (see “Many Tax Provisions Set to Expire at Year-End”), practitioners should be aware of what has changed.
Inflation Adjustments
The applicable amounts for many tax items increased on Jan. 1, due to annual inflation adjustments. Revised tax tables are in effect, as well as an increahttp://www.blogger.com/img/blank.gifsed personal exemption amount (now $3,800) and standard deduction amounts. Various credits and other items also were adjusted (see Rev. Proc. 2011-52). Contribution limits and other amounts for pension plans retirement accounts were also changed for 2012 (see IR-2011-103). The Social Security wage base for 2012 is $110,100.
The standard mileage rate for business use of an automobile remains at 55½ cents per mile for 2012; for medical and moving expenses it decreases to 23 cents per mile (Notice 2012-1), down a half-cent from the second half of 2011.
Capital Gain and Loss Reporting
Taxpayers will have to report new information on Form 1040, Schedule D, Capital Gains and Losses, and file a new form, Form 8949, Sales and Other Dispositions of Capital Assets, to report gains and lhttp://www.blogger.com/img/blank.gifosses of certain capital assets. The information on Form 8949 will correspond to the new information being reported on 2011 Forms 1099-B, Proceeds from Broker and Barter Exchange Transactions.
Under Sec. 6045, as amended in 2008, brokers are required to report to the IRS and their customers the customers’ adjusted basis in securities sold and to classify the customers’ gain as long term or short term. This basis reporting applies to covered securities acquired in 2011 and later (certain corporate stock in 2011 and other securities starting in later years; see Sec. 6045(g)(3)(C)).
Individuals will be required to report both short-term and long-term gains and losses of capital assets in the following three situations:
Veterans Work Opportunity Credits
The Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56, extended the work opportunity tax credit (now called the returning heroes and wounded warriors work opportunity tax credits) for businesses that hire certain military veterans. Employers will be eligible for a credit of up to $9,600 for each qualified veteran that they hire after the law’s enactment date (Nov. 21, 2011) and before Jan. 1, 2013.
Under the returning heroes tax credit, an employer may be eligible for a credit of up to $2,400 for hiring a veteran who has been unemployed for at least four weeks and up to $5,600 for hiring a veteran who has been unemployed for more than six months. Under the wounded warriors tax credit, an employer may be eligible forhttp://www.blogger.com/img/blank.gif a credit of up to $9,600 for hiring a veteran with a service-connected disability who has been unemployed for more than six months and up to $4,800 for hiring a veteran with a service-connected disability (who does not meet the returning hero credit requirements) or who qualifies as a food stamp recipient.
Foreign Asset Reporting
Under the Foreign Account Tax Compliance Act, individuals are required to report interests in specified foreign financial assets when filing their federal income tax returns (Sec. 6038D). This requirement was suspended until the Form 8938, Statement of Specified Foreign Financial Assets, was released (Notice 2011-55). The IRS posted the final version of the form and its instructions in December; taxpayers subject to the reporting requirement must file the form in 2012 for 2011 tax years. In addition, taxpayers who would have been required (except for the suspension of the requirement) to file Form 8938 in 2011 for a tax year that began after March 18, 2010, must file it for the prior year with their return for the current tax year.
Bonus Depreciation
The 100% first-year bonus depreciation provision expired on Dec. 31, but 50% bonus depreciation is available for property placed in service in 2012. (100% bonus depreciation does still apply in the case of certain longer-lived and transportation property placed in service before 2013.)
Estate Tax
Estates of decedents who died in 2010 have until Jan. 17, 2012, to elect not to have the estate tax apply and to have heirs’ bases in assets they inherit http://www.blogger.com/img/blank.gifhttp://www.blogger.com/img/blank.gifdetermihttp://www.blogger.com/img/blank.gifned under the modified carryover basis rules in Sec. 1022. This election is made by filing Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent. (For more on the Form 8939 requirements, see Cantrell, “Preparing and Filing Form 8939,” The Tax Adviser, November 2011.)
The estate and gift tax lifetime exclusion increases to $5.12 million for 2012.
EITC Due Diligence
The penalty for failing to meet the Sec. 6695(g) earned income tax credit (EITC) due diligence requirements increased from $100 to $500, effective for returns required to be filed after Dec. 31, 2011.
Voluntary Classification Settlement Program
http://www.blogger.com/img/blank.gif
A new voluntary classification settlement program (VCSP) introduced in September (Announcement 2011-64) allows eligible taxpayers to voluntarily reclassify their workers as employees for federal employment tax purposes for future tax periods while receiving relief for part of the tax liability relating to the past treatment of the workers as nonemployees. Taxpayers are eligible if they have consistently treated the workers as nonemployees, filed all required Forms 1099 for the previous three years, are not currently under IRS audit, are not currently under audit by the U.S. Department of Labor or a state agency, and complied with the audit results if the taxpayers were previously audited by the IRS or the Department of Labor.
The VCSP limits the tax liability to 10% of the employment tax liability that would have been due on the compensation paid to the workers in the most recent tax year, as calculated under the reduced rates of Sec. 3509. Interest and penalties are not charged on the liability.
The classification of these workers for prior years is not subject to an employment tax audit, but the statute of limitation on assessment of employment taxes is extended from three to six years for the first, second and third calendar years beginning after the date the taxpayers begin treating the workers as employees under the VCSP closing agreement.
By Alistair M. Nevius
With the ringing in of the new year, several new tax provisions took effect. http://www.blogger.com/img/blank.gifhttp://www.blogger.com/img/blank.gifWhile the list of new items does not compare with the number of tax provisions that expired at the end of 2011 (see “Many Tax Provisions Set to Expire at Year-End”), practitioners should be aware of what has changed.
Inflation Adjustments
The applicable amounts for many tax items increased on Jan. 1, due to annual inflation adjustments. Revised tax tables are in effect, as well as an increahttp://www.blogger.com/img/blank.gifsed personal exemption amount (now $3,800) and standard deduction amounts. Various credits and other items also were adjusted (see Rev. Proc. 2011-52). Contribution limits and other amounts for pension plans retirement accounts were also changed for 2012 (see IR-2011-103). The Social Security wage base for 2012 is $110,100.
The standard mileage rate for business use of an automobile remains at 55½ cents per mile for 2012; for medical and moving expenses it decreases to 23 cents per mile (Notice 2012-1), down a half-cent from the second half of 2011.
Capital Gain and Loss Reporting
Taxpayers will have to report new information on Form 1040, Schedule D, Capital Gains and Losses, and file a new form, Form 8949, Sales and Other Dispositions of Capital Assets, to report gains and lhttp://www.blogger.com/img/blank.gifosses of certain capital assets. The information on Form 8949 will correspond to the new information being reported on 2011 Forms 1099-B, Proceeds from Broker and Barter Exchange Transactions.
Under Sec. 6045, as amended in 2008, brokers are required to report to the IRS and their customers the customers’ adjusted basis in securities sold and to classify the customers’ gain as long term or short term. This basis reporting applies to covered securities acquired in 2011 and later (certain corporate stock in 2011 and other securities starting in later years; see Sec. 6045(g)(3)(C)).
Individuals will be required to report both short-term and long-term gains and losses of capital assets in the following three situations:
- When basis was reported in box 3 of Form 1099-B;
- When basis was not reported on Form 1099-B; or
- When no Form 1099-B was received.
Veterans Work Opportunity Credits
The Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56, extended the work opportunity tax credit (now called the returning heroes and wounded warriors work opportunity tax credits) for businesses that hire certain military veterans. Employers will be eligible for a credit of up to $9,600 for each qualified veteran that they hire after the law’s enactment date (Nov. 21, 2011) and before Jan. 1, 2013.
Under the returning heroes tax credit, an employer may be eligible for a credit of up to $2,400 for hiring a veteran who has been unemployed for at least four weeks and up to $5,600 for hiring a veteran who has been unemployed for more than six months. Under the wounded warriors tax credit, an employer may be eligible forhttp://www.blogger.com/img/blank.gif a credit of up to $9,600 for hiring a veteran with a service-connected disability who has been unemployed for more than six months and up to $4,800 for hiring a veteran with a service-connected disability (who does not meet the returning hero credit requirements) or who qualifies as a food stamp recipient.
Foreign Asset Reporting
Under the Foreign Account Tax Compliance Act, individuals are required to report interests in specified foreign financial assets when filing their federal income tax returns (Sec. 6038D). This requirement was suspended until the Form 8938, Statement of Specified Foreign Financial Assets, was released (Notice 2011-55). The IRS posted the final version of the form and its instructions in December; taxpayers subject to the reporting requirement must file the form in 2012 for 2011 tax years. In addition, taxpayers who would have been required (except for the suspension of the requirement) to file Form 8938 in 2011 for a tax year that began after March 18, 2010, must file it for the prior year with their return for the current tax year.
Bonus Depreciation
The 100% first-year bonus depreciation provision expired on Dec. 31, but 50% bonus depreciation is available for property placed in service in 2012. (100% bonus depreciation does still apply in the case of certain longer-lived and transportation property placed in service before 2013.)
Estate Tax
Estates of decedents who died in 2010 have until Jan. 17, 2012, to elect not to have the estate tax apply and to have heirs’ bases in assets they inherit http://www.blogger.com/img/blank.gifhttp://www.blogger.com/img/blank.gifdetermihttp://www.blogger.com/img/blank.gifned under the modified carryover basis rules in Sec. 1022. This election is made by filing Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent. (For more on the Form 8939 requirements, see Cantrell, “Preparing and Filing Form 8939,” The Tax Adviser, November 2011.)
The estate and gift tax lifetime exclusion increases to $5.12 million for 2012.
EITC Due Diligence
The penalty for failing to meet the Sec. 6695(g) earned income tax credit (EITC) due diligence requirements increased from $100 to $500, effective for returns required to be filed after Dec. 31, 2011.
Voluntary Classification Settlement Program
http://www.blogger.com/img/blank.gif
A new voluntary classification settlement program (VCSP) introduced in September (Announcement 2011-64) allows eligible taxpayers to voluntarily reclassify their workers as employees for federal employment tax purposes for future tax periods while receiving relief for part of the tax liability relating to the past treatment of the workers as nonemployees. Taxpayers are eligible if they have consistently treated the workers as nonemployees, filed all required Forms 1099 for the previous three years, are not currently under IRS audit, are not currently under audit by the U.S. Department of Labor or a state agency, and complied with the audit results if the taxpayers were previously audited by the IRS or the Department of Labor.
The VCSP limits the tax liability to 10% of the employment tax liability that would have been due on the compensation paid to the workers in the most recent tax year, as calculated under the reduced rates of Sec. 3509. Interest and penalties are not charged on the liability.
The classification of these workers for prior years is not subject to an employment tax audit, but the statute of limitation on assessment of employment taxes is extended from three to six years for the first, second and third calendar years beginning after the date the taxpayers begin treating the workers as employees under the VCSP closing agreement.
Monday, January 2, 2012
2012 Medicare debate
http://yourlife.usatoday.com/health/healthcare/story/2012-01-02/2012-Medicare-debate-is-all-about-the-baby-boomers/52334578/1
WASHINGTON – Baby boomers take note: Medicare as your parents have known it is headed for big changes no matter who wins the White House in 2012. You may not like it, but you might have to accept it.
Dial down the partisan rhetoric and surprising similarities emerge from competing policy prescriptions by President Barack Obama and leading Republicans such as Wisconsin Rep. Paul Ryan.
Limit the overall growth of Medicare spending? It's in both approaches.
Squeeze more money from upper-income retirees and some in the middle-class? Ditto.
Raise the eligibility age? That too, if the deal is right.
With more than 1.5 million baby boomers a year signing up for Medicare, the program's future is one of the most important economic issues for anyone now 50 or older. Health care costs are the most unpredictable part of retirement, and Medicare remains an exceptional deal for retirees, who can reap benefits worth far more than the payroll taxes they paid in during their careers.
"People would like to have what they used to have. What they don't seem to understand is that it's already changed," said Gail Wilensky, a former Medicare administrator and adviser to Republicans. "Medicare as we have known it is not part of our future."
Two sets of numbers underscore that point.
First, Medicare's giant trust fund for inpatient care is projected to run out of money in 2024. At that point, the program will collect only enough payroll taxes to pay 90 percent of benefits.
Second, researchers estimate that 20 to 30 percent of the more than $500 billion that Medicare now spends annually is wasted on treatments and procedures of little or no benefit to patients.
Taken together, that means policymakers can't let Medicare keep running on autopilot and they'll look for cuts before any payroll tax increases.
Privatization is the biggest divide between Democrats and Republicans.
Currently about 75 percent of Medicare recipients are in the traditional government-run, fee-for-service program and 25 percent are in private insurance plans known as Medicare Advantage.
Ryan's original approach, part of a budget plan the House passed in the spring, would have put 100 percent of future retirees into private insurance. His latest plan, developed with Sen. Ron Wyden, D-Ore., would keep traditional Medicare as an option, competing with private plans.
Older people would get a fixed payment they could use for private health insurance or traditional Medicare. Proponents call it "premium support." To foes, it's a voucher.
Under both of Ryan's versions, people now 55 or older would not have to make any changes. GOP presidential candidates Mitt Romney and Newt Gingrich praise his latest plan.
How would it work? Would it save taxpayers money? Would it shift costs to retirees as Ryan's earlier plan did? Would Congress later phase out traditional Medicare? Those and other questions must still be answered.
"I'm not sure anybody has come up with a formula on this that makes people comfortable," said health economist Marilyn Moon, who formerly served as a trustee helping to oversee Medicare finances.
White House spokesman Jay Carney says the Wyden-Ryan plan "would end Medicare as we know it for millions of seniors," causing the traditional program to "wither on the vine."
But what administration officials don't say is that Obama's health care law already puts in place one of Ryan's main goals by limiting future increases in Medicare spending.
Ryan would do it with a fixed payment for health insurance, adjusted to allow some growth. In theory that compels consumers and medical providers to be more cost-conscious. Obama does it with a powerful board that can force Medicare cuts to service providers if costs rise beyond certain levels and Congress fails to act.
Like several elements of Obama's health care overhaul, the Independent Payment Advisory Board is in limbo for now, but it is on the books. If the board survives Republican repeal attempts, it could become one of the government's most important domestic agencies.
The White House wants to keep the existing structure of Medicare while "twisting the dials" to control spending, said a current Medicare trustee, economist Robert Reischauer of the Urban Institute think tank.
Ryan's latest approach is arguably an evolution of the current Medicare Advantage private insurance program, not a radical change, Reischauer said. That's particularly so if traditional Medicare remains an option.
"In the hot and heavy political debate we are in, participants are exaggerating the difference between the proposals," he said.
During failed budget negotiations with Republicans last summer, Obama indicated a willingness to make more major changes to Medicare, including gradually raising the age of eligibility to 67, increasing premiums for many beneficiaries, revamping co-payments and deductibles in ways that would raise costs for retirees, and cutting payments to drugmakers and other providers.
"I was surprised by how much the president was willing to offer in terms of Medicare changes without a more thorough vetting and discussion," said Moon. Obama sayshttp://www.blogger.com/img/blank.gif he will veto any plan to cut Medicarhttp://www.blogger.com/img/blank.gife benefits without raising taxes on the wealthy.
Democrats are still hoping to use Ryan's privatization plans as a political weapon against Republicans in 2012, but the Medicare debate could cut both ways. For the 76 million baby boomers signing up over the next couple of decades, it will pay to be watching.
———
Online:
Medicare: http://www.medicare.gov
Ryan-Wyden plan: http://tinyurl.com/ct7utja
WASHINGTON – Baby boomers take note: Medicare as your parents have known it is headed for big changes no matter who wins the White House in 2012. You may not like it, but you might have to accept it.
Dial down the partisan rhetoric and surprising similarities emerge from competing policy prescriptions by President Barack Obama and leading Republicans such as Wisconsin Rep. Paul Ryan.
Limit the overall growth of Medicare spending? It's in both approaches.
Squeeze more money from upper-income retirees and some in the middle-class? Ditto.
Raise the eligibility age? That too, if the deal is right.
With more than 1.5 million baby boomers a year signing up for Medicare, the program's future is one of the most important economic issues for anyone now 50 or older. Health care costs are the most unpredictable part of retirement, and Medicare remains an exceptional deal for retirees, who can reap benefits worth far more than the payroll taxes they paid in during their careers.
"People would like to have what they used to have. What they don't seem to understand is that it's already changed," said Gail Wilensky, a former Medicare administrator and adviser to Republicans. "Medicare as we have known it is not part of our future."
Two sets of numbers underscore that point.
First, Medicare's giant trust fund for inpatient care is projected to run out of money in 2024. At that point, the program will collect only enough payroll taxes to pay 90 percent of benefits.
Second, researchers estimate that 20 to 30 percent of the more than $500 billion that Medicare now spends annually is wasted on treatments and procedures of little or no benefit to patients.
Taken together, that means policymakers can't let Medicare keep running on autopilot and they'll look for cuts before any payroll tax increases.
Privatization is the biggest divide between Democrats and Republicans.
Currently about 75 percent of Medicare recipients are in the traditional government-run, fee-for-service program and 25 percent are in private insurance plans known as Medicare Advantage.
Ryan's original approach, part of a budget plan the House passed in the spring, would have put 100 percent of future retirees into private insurance. His latest plan, developed with Sen. Ron Wyden, D-Ore., would keep traditional Medicare as an option, competing with private plans.
Older people would get a fixed payment they could use for private health insurance or traditional Medicare. Proponents call it "premium support." To foes, it's a voucher.
Under both of Ryan's versions, people now 55 or older would not have to make any changes. GOP presidential candidates Mitt Romney and Newt Gingrich praise his latest plan.
How would it work? Would it save taxpayers money? Would it shift costs to retirees as Ryan's earlier plan did? Would Congress later phase out traditional Medicare? Those and other questions must still be answered.
"I'm not sure anybody has come up with a formula on this that makes people comfortable," said health economist Marilyn Moon, who formerly served as a trustee helping to oversee Medicare finances.
White House spokesman Jay Carney says the Wyden-Ryan plan "would end Medicare as we know it for millions of seniors," causing the traditional program to "wither on the vine."
But what administration officials don't say is that Obama's health care law already puts in place one of Ryan's main goals by limiting future increases in Medicare spending.
Ryan would do it with a fixed payment for health insurance, adjusted to allow some growth. In theory that compels consumers and medical providers to be more cost-conscious. Obama does it with a powerful board that can force Medicare cuts to service providers if costs rise beyond certain levels and Congress fails to act.
Like several elements of Obama's health care overhaul, the Independent Payment Advisory Board is in limbo for now, but it is on the books. If the board survives Republican repeal attempts, it could become one of the government's most important domestic agencies.
The White House wants to keep the existing structure of Medicare while "twisting the dials" to control spending, said a current Medicare trustee, economist Robert Reischauer of the Urban Institute think tank.
Ryan's latest approach is arguably an evolution of the current Medicare Advantage private insurance program, not a radical change, Reischauer said. That's particularly so if traditional Medicare remains an option.
"In the hot and heavy political debate we are in, participants are exaggerating the difference between the proposals," he said.
During failed budget negotiations with Republicans last summer, Obama indicated a willingness to make more major changes to Medicare, including gradually raising the age of eligibility to 67, increasing premiums for many beneficiaries, revamping co-payments and deductibles in ways that would raise costs for retirees, and cutting payments to drugmakers and other providers.
"I was surprised by how much the president was willing to offer in terms of Medicare changes without a more thorough vetting and discussion," said Moon. Obama sayshttp://www.blogger.com/img/blank.gif he will veto any plan to cut Medicarhttp://www.blogger.com/img/blank.gife benefits without raising taxes on the wealthy.
Democrats are still hoping to use Ryan's privatization plans as a political weapon against Republicans in 2012, but the Medicare debate could cut both ways. For the 76 million baby boomers signing up over the next couple of decades, it will pay to be watching.
———
Online:
Medicare: http://www.medicare.gov
Ryan-Wyden plan: http://tinyurl.com/ct7utja
Tuesday, December 27, 2011
Payroll Tax Cut Extension Includes Recapture Provision
The article below is almost verbatim of an IRS press release. In plain English, the 2% reduction is good for one-sixth of the 2012 FICA wage base (i.e., one-sixth of $110,100 or $18,350). Employers will withhold at the 4.2% rate through February on all wages paid to an employee, even if they are in excess of $18,350. The employee will “recapture” the excess tax break on his or her personal 2012 Form 1040 tax return filed in early 2013 (assuming that the 2% reduction is not extended past the first two months of 2012).
__________
http://www.accountingtoday.com/news/Payroll-Tax-Cut-Extension-Includes-Recapture-Provision-61259-1.html
The Internal Revenue Service plans to issue additional guidance on the temporary two-month extension of the payroll tax cut, including how a new “recapture” provision for high-income employees will be implemented.
The tax cut extension was passed by Congress on Friday and signed into law by President Obama later that day, with plans to return in January to find a way to agree on how to pay for extending the tax cut through the rest of the year (see Congress Passes 2-Month Payroll Tax Cut Extension). The IRS said Friday that nearly 160 million would benefit from the extension of the reduced payroll tax rate that has been in effect for 2011.
The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits, the IRS noted. The tax cut extension is paid for with an increase on the guarantee fee paid by lenders on all new mortgage loans whose principal and interest are backed by Fannie Mae and Freddie Mac.
Employers should implement the new payroll tax rate as soon as possible in 2012, but not later than Jan. 31, 2012, the IRS advised. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.
Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.
Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).
This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS said it would closely monitor the situation in case future legislation changes the recapture provision.
The IRS said it would also issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due April 30, 2012.
The legislation passed by Congress on Friday includes some technical corrections to address the concerns of payroll processors and small businesses about how the two-month extension would work (see House Republicans to Offer 2-Month Payroll tax Cut Bill). It corrects a flaw in the Senate provision by allowing employers to withhold employee payroll taxes at the reduced rate (4.2 percent) on all wages paid during the two-month period, subject only to the full 2012 wage base ($110,100) and without regard to the new $18,350 cap on wages earned through the end of February.
If an employee’s wages during the first two months of 2012 exceed $18,350 (two-twelfths of the wage base of $110,100), an amount equal to 2 percent of those excess wages would ultimately be recaptured on the worker’s individual tax return for 2012. However, this rule would only apply if the payroll tax reduction is not extended for the remainder of 2012, and a conference committee is expected to convene soon in order to negotiate a full-year extension.
__________
http://www.accountingtoday.com/news/Payroll-Tax-Cut-Extension-Includes-Recapture-Provision-61259-1.html
The Internal Revenue Service plans to issue additional guidance on the temporary two-month extension of the payroll tax cut, including how a new “recapture” provision for high-income employees will be implemented.
The tax cut extension was passed by Congress on Friday and signed into law by President Obama later that day, with plans to return in January to find a way to agree on how to pay for extending the tax cut through the rest of the year (see Congress Passes 2-Month Payroll Tax Cut Extension). The IRS said Friday that nearly 160 million would benefit from the extension of the reduced payroll tax rate that has been in effect for 2011.
The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits, the IRS noted. The tax cut extension is paid for with an increase on the guarantee fee paid by lenders on all new mortgage loans whose principal and interest are backed by Fannie Mae and Freddie Mac.
Employers should implement the new payroll tax rate as soon as possible in 2012, but not later than Jan. 31, 2012, the IRS advised. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.
Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.
Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).
This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS said it would closely monitor the situation in case future legislation changes the recapture provision.
The IRS said it would also issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due April 30, 2012.
The legislation passed by Congress on Friday includes some technical corrections to address the concerns of payroll processors and small businesses about how the two-month extension would work (see House Republicans to Offer 2-Month Payroll tax Cut Bill). It corrects a flaw in the Senate provision by allowing employers to withhold employee payroll taxes at the reduced rate (4.2 percent) on all wages paid during the two-month period, subject only to the full 2012 wage base ($110,100) and without regard to the new $18,350 cap on wages earned through the end of February.
If an employee’s wages during the first two months of 2012 exceed $18,350 (two-twelfths of the wage base of $110,100), an amount equal to 2 percent of those excess wages would ultimately be recaptured on the worker’s individual tax return for 2012. However, this rule would only apply if the payroll tax reduction is not extended for the remainder of 2012, and a conference committee is expected to convene soon in order to negotiate a full-year extension.
Friday, December 23, 2011
House, Senate Clear Payroll-Tax Accord
http://online.wsj.com/article/SB10001424052970204464404577116360775425238.html
By SIOBHAN HUGHES
WASHINGTON—The House and Senate on Friday approved a two-month extension of the payroll-tax cut, averting an increase that would have left workers with less take-home pay next year.
Passage came after a nearly weeklong impasse that ended when House Speaker John Boehner (R, Ohio) bowed to increasing pressure from within his own party and agreed to the short-term extension.
The $33 billion package also provides extended federal unemployment benefits for two months, avoids a cut in payments to doctors who treat Medicare patients and compels the Obama administration to act within 60 days on a permit for TransCanada Corp.'s proposed Keystone XL pipeline expansion.
The deal, which forestalls a Jan. 1 tax increase on 160 million workers, represents a retreat for the House GOP, which had been at odds with Senate Republicans and party elders who feared a backlash in the 2012 elections if the tax break was allowed to expire.
The agreement is essentially the same package negotiated by the Democratic-controlled Senate that Mr. Boehner's House rejected earlier this week.
One difference in the new agreement is the elimination of a Senate-crafted provision businesses believed would be burdensome. That provision would have changed the way payroll taxes would have been deducted for higher-paid workers, a move that would have meant changing payroll systems.
Mr. Boehner changed course a few hours after Senate Minority Leader Mitch McConnell (R., Ky.) stepped into the debate and urged House Republicans to pass the two-month extension approved by the Senate last Saturday in an 89-10 vote. As part of the new deal, all sides committed to negotiating early next year on a full-year extension of the tax break.
The impasse was a rare split between the two Republican leaders, who for most of this year have worked hand in glove to battle President Barack Obama. The split reflects, in part, the pressure Mr. Boehner faces from the GOP's tea-party faction, compared with Mr. McConnell, who is more willing to accept tactical victories.
Mr. Boehner's leadership within his own caucus may suffer new strains from the retreat, the latest in a string of tussles he has had with rank-and-file members this year on issues ranging from government funding to the debt ceiling. When he announced his decision to compromise in a 10-minute conference call with Republicans around the country Thursday evening, Mr. Boehner took no questions.
The House GOP, in appearing to risk allowing the tax break to lapse Jan. 1, did some damage to the party's reputation of holding the line on tax increases. The standoff also threatened what had been a major victory for Republicans: including a provision in the original tax agreement to force Mr. Obama to make a quicker decision on building the Keystone XL pipeline, which the president had previously punted until after the 2012 elections. That provision remains in the new agreement.
So topsy-turvy were the politics Thursday that it brought the spectacle of Mr. Obama endorsing the words of Mr. McConnell, the man who began 2011 pledging to do all he could to prevent the president's re-election.
"Democrats agree with the Republican leader of the Senate," said Mr. Obama. "This is an issue where an overwhelming number of people in both parties agree. Has this place gotten so dysfunctional that even when people agree to things, we can't do it?"
Announcing the pact on his Twitter feed, Mr. Boehner said the agreement was designed to "ensure taxes do not increase for working families on January 1 while ensuring that a complex new reporting burden is not unintentionally imposed on small business job creators."
At issue is extending the current 4.2% payroll tax levied to fund Social Security, rather than allowing it to return to 6.2% on Jan. 1, its rate before this year. House Republicans, in pushing for a full-year extension of the tax break, have cast their position as one of principle over politics. They conceded Thursday that they were losing the public-relations battle by their fighting.
"We're not doing this for the politics," Rep. Greg Walden (R., Ore.) told reporters. "You all have pointed this out pretty clearly."
Speaking to reporters Thursday evening, Mr. Boehner acknowledged that his party might suffer from picking this fight. "It might not have been politically the smartest thing in the world," he said. "Sometimes it's hard to do the right thing and sometimes it's politically difficult to do the right thing."
A growing number of Republicans urged the House this week to cut their political losses and pass the short-term extension. Those making that push, including GOP presidential candidate Newt Gingrich and former GOP presidential nominee John McCain, made their case even louder on Thursday.
"At this point, the House should pass the Senate's short-term extension to ensure 160 million hard-working Americans won't lose important tax relief at the end of this year,'' said Sen. Olympia Snowe (R., Maine).
No voice was more important than that of Mr. McConnell, who had been silent as the storm brewed. He had considered the Senate deal a big Republican victory because it included language on the Keystone pipeline.
Instead of seen as backtracking on the oil pipeline and his demand for a one-year extension, President Obama this week became the defender of a two-month tax cut. The White House mounted a daily public-relations effort to advocate extending the tax cut, but in the end, White House officials believed Mr. McConnell's statement Thursday was key to expediting the drama's conclusion.
Before agreeing to the new deal, Republicans insisted on language to address a problem businesses face in the two-month extension, aides said. The Senate bill imposed a cap on how much salary would be subject to the lower tax rate. That was dropped in an effort to be sure businesses can process payroll taxes under the accounting structure now in place, a House GOP aide said.
The bill's $33 billion cost is expected to be covered by an increase in fees charged to mortgage lenders by government housing agencies Fannie Mae and Freddie Mac. That has been criticized by the firms' regulator and industry analysts, who say it will complicate the task of revamping the mortgage giants.
The fee increase, expected to raise about $35.7 billion in revenue over 10 years, likely would be passed on to new-home buyers, raising their monthly mortgage payments by as much as $15 on mortgages of $210,000.
—Janet Hook, Laura Meckler and Kristina Peterson contributed to this article.
By SIOBHAN HUGHES
WASHINGTON—The House and Senate on Friday approved a two-month extension of the payroll-tax cut, averting an increase that would have left workers with less take-home pay next year.
Passage came after a nearly weeklong impasse that ended when House Speaker John Boehner (R, Ohio) bowed to increasing pressure from within his own party and agreed to the short-term extension.
The $33 billion package also provides extended federal unemployment benefits for two months, avoids a cut in payments to doctors who treat Medicare patients and compels the Obama administration to act within 60 days on a permit for TransCanada Corp.'s proposed Keystone XL pipeline expansion.
The deal, which forestalls a Jan. 1 tax increase on 160 million workers, represents a retreat for the House GOP, which had been at odds with Senate Republicans and party elders who feared a backlash in the 2012 elections if the tax break was allowed to expire.
The agreement is essentially the same package negotiated by the Democratic-controlled Senate that Mr. Boehner's House rejected earlier this week.
One difference in the new agreement is the elimination of a Senate-crafted provision businesses believed would be burdensome. That provision would have changed the way payroll taxes would have been deducted for higher-paid workers, a move that would have meant changing payroll systems.
Mr. Boehner changed course a few hours after Senate Minority Leader Mitch McConnell (R., Ky.) stepped into the debate and urged House Republicans to pass the two-month extension approved by the Senate last Saturday in an 89-10 vote. As part of the new deal, all sides committed to negotiating early next year on a full-year extension of the tax break.
The impasse was a rare split between the two Republican leaders, who for most of this year have worked hand in glove to battle President Barack Obama. The split reflects, in part, the pressure Mr. Boehner faces from the GOP's tea-party faction, compared with Mr. McConnell, who is more willing to accept tactical victories.
Mr. Boehner's leadership within his own caucus may suffer new strains from the retreat, the latest in a string of tussles he has had with rank-and-file members this year on issues ranging from government funding to the debt ceiling. When he announced his decision to compromise in a 10-minute conference call with Republicans around the country Thursday evening, Mr. Boehner took no questions.
The House GOP, in appearing to risk allowing the tax break to lapse Jan. 1, did some damage to the party's reputation of holding the line on tax increases. The standoff also threatened what had been a major victory for Republicans: including a provision in the original tax agreement to force Mr. Obama to make a quicker decision on building the Keystone XL pipeline, which the president had previously punted until after the 2012 elections. That provision remains in the new agreement.
So topsy-turvy were the politics Thursday that it brought the spectacle of Mr. Obama endorsing the words of Mr. McConnell, the man who began 2011 pledging to do all he could to prevent the president's re-election.
"Democrats agree with the Republican leader of the Senate," said Mr. Obama. "This is an issue where an overwhelming number of people in both parties agree. Has this place gotten so dysfunctional that even when people agree to things, we can't do it?"
Announcing the pact on his Twitter feed, Mr. Boehner said the agreement was designed to "ensure taxes do not increase for working families on January 1 while ensuring that a complex new reporting burden is not unintentionally imposed on small business job creators."
At issue is extending the current 4.2% payroll tax levied to fund Social Security, rather than allowing it to return to 6.2% on Jan. 1, its rate before this year. House Republicans, in pushing for a full-year extension of the tax break, have cast their position as one of principle over politics. They conceded Thursday that they were losing the public-relations battle by their fighting.
"We're not doing this for the politics," Rep. Greg Walden (R., Ore.) told reporters. "You all have pointed this out pretty clearly."
Speaking to reporters Thursday evening, Mr. Boehner acknowledged that his party might suffer from picking this fight. "It might not have been politically the smartest thing in the world," he said. "Sometimes it's hard to do the right thing and sometimes it's politically difficult to do the right thing."
A growing number of Republicans urged the House this week to cut their political losses and pass the short-term extension. Those making that push, including GOP presidential candidate Newt Gingrich and former GOP presidential nominee John McCain, made their case even louder on Thursday.
"At this point, the House should pass the Senate's short-term extension to ensure 160 million hard-working Americans won't lose important tax relief at the end of this year,'' said Sen. Olympia Snowe (R., Maine).
No voice was more important than that of Mr. McConnell, who had been silent as the storm brewed. He had considered the Senate deal a big Republican victory because it included language on the Keystone pipeline.
Instead of seen as backtracking on the oil pipeline and his demand for a one-year extension, President Obama this week became the defender of a two-month tax cut. The White House mounted a daily public-relations effort to advocate extending the tax cut, but in the end, White House officials believed Mr. McConnell's statement Thursday was key to expediting the drama's conclusion.
Before agreeing to the new deal, Republicans insisted on language to address a problem businesses face in the two-month extension, aides said. The Senate bill imposed a cap on how much salary would be subject to the lower tax rate. That was dropped in an effort to be sure businesses can process payroll taxes under the accounting structure now in place, a House GOP aide said.
The bill's $33 billion cost is expected to be covered by an increase in fees charged to mortgage lenders by government housing agencies Fannie Mae and Freddie Mac. That has been criticized by the firms' regulator and industry analysts, who say it will complicate the task of revamping the mortgage giants.
The fee increase, expected to raise about $35.7 billion in revenue over 10 years, likely would be passed on to new-home buyers, raising their monthly mortgage payments by as much as $15 on mortgages of $210,000.
—Janet Hook, Laura Meckler and Kristina Peterson contributed to this article.
Tuesday, December 20, 2011
10 Things Medicare Won't Tell You
http://www.smartmoney.com/retirement/planning/10-things-medicare-wont-tell-you-1324333528533/
Here are the 10 items. Click on the link above to read the entire article.
Here are the 10 items. Click on the link above to read the entire article.
- We fork over millions for unproven procedures.
- Think Social Security is broke? Just look at Medicare.
- We pay for dead people.
- Don't expect a five-star plan.
- We're not popular with many doctors.
- We get ripped off a lot.
- We don't cover a lot of the care seniors need most.
- Paws off that cash, grandpa: Your settlement is ours.
- Complain all you want ...
- Want Your Way? Just ask.
Monday, November 7, 2011
IRS Opens Phone Line for FBAR and Title 31 Help
http://www.accountingtoday.com/news/IRS-Opens-Phone-Line-FBAR-Title-31-Help-60710-1.html
The Internal Revenue Service has opened a new telephone help line for questions about foreign bank account reports.
The IRS FBAR and Title 31 Helpline will connect practitioners and filers, both in the U.S. and abroad, with a team of specially trained technicians, examiners and specialists to answer technical questions about Title 31, also known as the Bank Secrecy Act. They can help taxpayers and tax practitioners with questions related to filing reports on foreign bank accounts. The IRS has been encouraging taxpayers to come forward and report their foreign bank account holdings to avoid stiff penalties.
To reach the FBAR and Title 31 Helpline, dial (866) 270-0733 for toll-free calls within the U.S., or (313) 234-6146 for callers outside the U.S. The latter is not a toll-free phone number.
Hours of operation for the FBAR and Title 31 Helpline are Monday - Friday, 8 a.m. to 4:30 p.m., Eastern time. An IRS employee will respond to messages left after-hours.
The FBAR and Title 31 Helpline team answers questions related to reports required by the Bank Secrecy Act of 1970, such as the Report of Foreign Bank and Financial Accounts, commonly known as the FBAR, and reports filed by money services businesses. The Helpline team can also assist with other Title 31 technical issues and BSA correspondence.
Taxpayers and practitioners can also find answers on the IRS's FBAR frequently asked questions page or by sending an inquiry to FBARquestions@irs.gov. Here is another helpful IRS web site, http://www.irs.gov/businesses/small/article/0,,id=159757,00.html
The Internal Revenue Service has opened a new telephone help line for questions about foreign bank account reports.
The IRS FBAR and Title 31 Helpline will connect practitioners and filers, both in the U.S. and abroad, with a team of specially trained technicians, examiners and specialists to answer technical questions about Title 31, also known as the Bank Secrecy Act. They can help taxpayers and tax practitioners with questions related to filing reports on foreign bank accounts. The IRS has been encouraging taxpayers to come forward and report their foreign bank account holdings to avoid stiff penalties.
To reach the FBAR and Title 31 Helpline, dial (866) 270-0733 for toll-free calls within the U.S., or (313) 234-6146 for callers outside the U.S. The latter is not a toll-free phone number.
Hours of operation for the FBAR and Title 31 Helpline are Monday - Friday, 8 a.m. to 4:30 p.m., Eastern time. An IRS employee will respond to messages left after-hours.
The FBAR and Title 31 Helpline team answers questions related to reports required by the Bank Secrecy Act of 1970, such as the Report of Foreign Bank and Financial Accounts, commonly known as the FBAR, and reports filed by money services businesses. The Helpline team can also assist with other Title 31 technical issues and BSA correspondence.
Taxpayers and practitioners can also find answers on the IRS's FBAR frequently asked questions page or by sending an inquiry to FBARquestions@irs.gov. Here is another helpful IRS web site, http://www.irs.gov/businesses/small/article/0,,id=159757,00.html
Monday, October 31, 2011
The debt fallout: How Social Security went ‘cash negative’ earlier than expected
http://www.washingtonpost.com/business/economy/the-debt-fallout-how-social-security-went-cash-negative-earlier-than-expected/2011/10/27/gIQACm1QTM_story.html
By Lori Montgomery, Published: October 29
Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went “cash negative.”
For most of its 75-year history, the program had paid its own way through a dedicated stream of payroll taxes, even generating huge surpluses for the past two decades. But in 2010, under the strain of a recession that caused tax revenue to plummet, the cost of benefits outstripped tax collections for the first time since the early 1980s.
Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation’s budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require an additional $105 billion. If the payroll tax break is expanded next year, as President Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.
But while talk about fixing the nation’s finances has grown more urgent, fixing Social Security has largely vanished from the conversation.
Lawmakers in both parties are ducking the issue, wary of agitating older voters and their advocates in Washington, who have long targeted politicians who try to tamper with federal retirement benefits. Democrats lost control of the House last year in part because seniors abandoned them in protest over Medicare cuts in Obama’s much-contested health-care act, and no one in Washington has forgotten that lesson.
In his February budget request, Obama ignored the Social Security blueprint put forth by his own bipartisan panel on debt reduction. During this summer’s debt-limit showdown, he endorsed the panel’s proposal to tie future benefits to a less-generous inflation index. But Obama took that idea off the table in September when he submitted recommendations to a special debt-reduction “supercommittee” now at work on Capitol Hill. Until recently, members of the supercommittee said, Social Security had rarely come up in their closed deliberations.
Social Security is hardly the biggest drain on the budget. But unless Congress acts, its finances will continue to deteriorate as the rising tide of baby boomers begins claiming benefits. The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing.http://www.blogger.com/img/blank.gif
Many Democrats have largely chosen to ignore the shortfall, insisting the program is flush, citing the existence of the trust fund. They argue that fixing Social Security can wait, perhaps for years.
Senate Majority Leader Harry M. Reid (D-Nev.), who is fighting to maintain control of the Senate, has been particularly outspoken. In March, as a bipartisan group of six senators was gaining attention for a push to draft a debt-reduction plan that included a Social Security fix, Reid summoned hundreds of activists to a rally on Capitol Hill. Fresh off a tough reelection campaign that turned in his favor after he accused his tea party opponent of wanting to “wipe out” Social Security, Reid exhorted policymakers to “leave Social Security alone.”
For a discussion on this article, see http://www.theatlanticwire.com/politics/2011/10/social-security-story-s-driving-liberals-crazy/44324/
Wednesday, October 19, 2011
Social Security Announces 3.6 Percent Benefit Increase for 2012
http://www.ssa.gov/pressoffice/pr/2012cola-pr.html
Cost-of-Living Adjustment is First Since 2009
Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 60 million Americans will increase 3.6 percent in 2012, the Social Security Administration announced today.
The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2011.
Some other changes that take effect in January of each year are based on the http://www.blogger.com/img/blank.gifincrease in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $110,100 from $106,800. Of the estimated 161 million workers who will pay Social Security taxes in 2012, about 10 million will pay higher taxes as a result of the increase in the taxable maximum.
Information about Medicare changes for 2012, when announced, will be available at www.Medicare.gov. For some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.
The Social Security Act provides for how the COLA is calculated. To read more, please visit www.socialsecurity.gov/cola.
Click here for fact sheet showing the effect of the various automatic adjustments.
Cost-of-Living Adjustment is First Since 2009
Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 60 million Americans will increase 3.6 percent in 2012, the Social Security Administration announced today.
The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive in January 2012. Increased payments to more than 8 million SSI beneficiaries will begin on December 30, 2011.
Some other changes that take effect in January of each year are based on the http://www.blogger.com/img/blank.gifincrease in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $110,100 from $106,800. Of the estimated 161 million workers who will pay Social Security taxes in 2012, about 10 million will pay higher taxes as a result of the increase in the taxable maximum.
Information about Medicare changes for 2012, when announced, will be available at www.Medicare.gov. For some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.
The Social Security Act provides for how the COLA is calculated. To read more, please visit www.socialsecurity.gov/cola.
Click here for fact sheet showing the effect of the various automatic adjustments.
Tuesday, October 18, 2011
Social Security to hand out first raises since '09
http://news.yahoo.com/social-security-hand-first-raises-since-09-164904352.html
WASHINGTON (AP) — Social Security recipients will get a raise in January — their first increase in benefits since 2009. It's expected to be about 3.5 percent.
Some 55 million beneficiaries will find out for sure Wednesday when a government inflation measure that determines the annual cost-of-living adjustment is released.
Congress adopted the measure in the 1970s, and since then it has resulted in annual benefit increases averaging 4.2 percent. But there was no COLA in 2010 or 2011 because inflation was too low. That was small comfort to the millions of retirees and disabled people who have seen retirement accounts dwindle and home values drop during the period of economic weakness, said David Certner, legislative policy director for the AARP.
"People certainly feel like they are falling behind, and these are modest income folks to begin with, so every dollar counts," Certner said. "I think sometimes people forget what seniors' incomes are."
Some of the increase in January will be lost to higher Medicare premiums, which are deducted from Social Security payments. Medicare Part B premiums for 2012 are expected to be announced next week, and the trustees who oversee the program are projecting an increase.
Monthly Social Security payments average $1,082, or about $13,000 a year. A 3.5 percent increase would amount to an additional $38 a month, or about $455 a year.
Most retirees rely on Social Security for a majority of their income, according to the Social Security Administration. Many rely on it for more than 90 percent of their income.
Federal law requires the program to base annual payment increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Officials compare inflation in the third quarter of each year — the months of July, August and September — with the same months in the previous year.
If consumer prices increases from year to year, Social Security recipients automatically get higher payments, starting the next January. If price changes are negative, the payments stay unchanged.
Only twice since 1975 — the past two years — has there been no COLA.
Wednesday's COLA announcement will come as a special joint committee of Congress weighs options to reduce the federal government's $1.3 trillion budget deficit. In talks this summer, President Barack Obama floated the idea of adopting a new measure of inflation to calculate the COLA, one that would reduce the annual increases.
Advocates for seniors mounted an aggressive campaign against the proposal, and it was scrapped. But it could resurface in the ongoing talks.
"We're very concerned about that," said Web Phillips of the National Committee to Preserve Social Security and Medicare. "I think that what this illustrates is the dangers of trying to make Social Security policy in the context of deficit reduction."
Social Security payments increased by 5.8 percent in 2009, the largest increase in 27 years, after energy prices spiked in 2008. But energy prices quickly dropped and home prices became soft in markets across the country, contributing to lower inflation the past two years.
For example, average gasoline prices topped $4 a gallon in the summer of 2008. But by January 2009, they had fallen below $2. Today, the national average is about $3.46 a gallon.
"A lot of that increase had to do with energy," Polina Vlasenko, an economist at the American Institute for Economic Research, based in Great Barrington, Mass., said of the 2009 change.
As a result, Social Security recipients got an increase that was far larger than actual overall inflation. However, they weren't to get anhttp://www.blogger.com/img/blank.gifother increase until consumer prices exceeded the levels measured in 2008.
So far this year, prices have been higher than that, Vlasenko said. Based on consumer prices in July and August, the COLA for 2012 would be about 3.5 percent. Vlasenko estimates the COLA will be from 3.5 percent to 3.7 percent.
Advocates for seniors say it's about time.
"If you've been at the grocery store lately and remember what you used to pay for things, see what you're paying for things today," Phillips said. "The cost-of-living adjustment makes sure that the Social Security benefit that you qualify for when you retire or you become disabled continues to stay current with prices so that the buying power of your benefit does not decline over time."
For more reading, go to http://www.marketwatch.com/story/social-security-benefits-to-increase-in-2012-2011-10-18
WASHINGTON (AP) — Social Security recipients will get a raise in January — their first increase in benefits since 2009. It's expected to be about 3.5 percent.
Some 55 million beneficiaries will find out for sure Wednesday when a government inflation measure that determines the annual cost-of-living adjustment is released.
Congress adopted the measure in the 1970s, and since then it has resulted in annual benefit increases averaging 4.2 percent. But there was no COLA in 2010 or 2011 because inflation was too low. That was small comfort to the millions of retirees and disabled people who have seen retirement accounts dwindle and home values drop during the period of economic weakness, said David Certner, legislative policy director for the AARP.
"People certainly feel like they are falling behind, and these are modest income folks to begin with, so every dollar counts," Certner said. "I think sometimes people forget what seniors' incomes are."
Some of the increase in January will be lost to higher Medicare premiums, which are deducted from Social Security payments. Medicare Part B premiums for 2012 are expected to be announced next week, and the trustees who oversee the program are projecting an increase.
Monthly Social Security payments average $1,082, or about $13,000 a year. A 3.5 percent increase would amount to an additional $38 a month, or about $455 a year.
Most retirees rely on Social Security for a majority of their income, according to the Social Security Administration. Many rely on it for more than 90 percent of their income.
Federal law requires the program to base annual payment increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Officials compare inflation in the third quarter of each year — the months of July, August and September — with the same months in the previous year.
If consumer prices increases from year to year, Social Security recipients automatically get higher payments, starting the next January. If price changes are negative, the payments stay unchanged.
Only twice since 1975 — the past two years — has there been no COLA.
Wednesday's COLA announcement will come as a special joint committee of Congress weighs options to reduce the federal government's $1.3 trillion budget deficit. In talks this summer, President Barack Obama floated the idea of adopting a new measure of inflation to calculate the COLA, one that would reduce the annual increases.
Advocates for seniors mounted an aggressive campaign against the proposal, and it was scrapped. But it could resurface in the ongoing talks.
"We're very concerned about that," said Web Phillips of the National Committee to Preserve Social Security and Medicare. "I think that what this illustrates is the dangers of trying to make Social Security policy in the context of deficit reduction."
Social Security payments increased by 5.8 percent in 2009, the largest increase in 27 years, after energy prices spiked in 2008. But energy prices quickly dropped and home prices became soft in markets across the country, contributing to lower inflation the past two years.
For example, average gasoline prices topped $4 a gallon in the summer of 2008. But by January 2009, they had fallen below $2. Today, the national average is about $3.46 a gallon.
"A lot of that increase had to do with energy," Polina Vlasenko, an economist at the American Institute for Economic Research, based in Great Barrington, Mass., said of the 2009 change.
As a result, Social Security recipients got an increase that was far larger than actual overall inflation. However, they weren't to get anhttp://www.blogger.com/img/blank.gifother increase until consumer prices exceeded the levels measured in 2008.
So far this year, prices have been higher than that, Vlasenko said. Based on consumer prices in July and August, the COLA for 2012 would be about 3.5 percent. Vlasenko estimates the COLA will be from 3.5 percent to 3.7 percent.
Advocates for seniors say it's about time.
"If you've been at the grocery store lately and remember what you used to pay for things, see what you're paying for things today," Phillips said. "The cost-of-living adjustment makes sure that the Social Security benefit that you qualify for when you retire or you become disabled continues to stay current with prices so that the buying power of your benefit does not decline over time."
For more reading, go to http://www.marketwatch.com/story/social-security-benefits-to-increase-in-2012-2011-10-18
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