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Social Security Mailbox

What Social Security Changes Are Coming in 2013?

Key numbers can affect taxes and benefits

En Español| Q. I hear that each fall, Social Security announces changes to its benefits for the following year. What changes will take place in 2013?

A. You've probably already heard of the most important one, a 1.7 percent cost-of-living adjustment (COLA), which will go to 56 million Social Security beneficiaries starting next January. The 8 million people who receive Supplemental Security Income (SSI), a separate benefit, will get their increased payments starting in December of this year.

The COLA is based on the percentage increase of the Consumer Price Index of the third quarter of 2012 compared with the figure for the third quarter of 2011.

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But at this time of year, Social Security also recalculates other crucial numbers that can affect the taxes you pay and the benefits you receive.

• Maximum Taxable Earnings. In 2012, workers paid Social Security taxes on income up to $110,100. In 2013, the figure will rise to $113,700, based on an increase in average wages. There's no income limit on the taxes that workers pay for Medicare taxes.

• Social Security Credits. When people work and pay Social Security taxes, they earn credits toward retirement and other benefits. In 2012, workers received one credit for each $1,130 of earnings, up to a maximum of four credits a year. In 2013, it will take $1,160 to earn one credit. Generally, a worker needs 40 credits (10 years of work) to be eligible for benefits.

• Retirement Earnings Test. When people age 62 to full retirement age (currently 66) receive retirement benefits and continue to work, they face a limit on what they can earn before they have to "give back" some of their benefits.

In 2012, workers had to give back $1 in benefits for every $2 in earnings above the limit of $14,640. In 2013, that limit will rise to $15,120.

This formula applies only until the year in which the worker reaches full retirement age. For the months up to the month of the birthday, a different formula applies: In 2012, Social Security was holding back $1 in benefits for every $3 that such a worker earned above $38,880. In 2013, that limit will increase to $40,080.

The earnings limit goes away beginning the month that the worker reaches full retirement age.

In any event, benefits that are taken back this way from workers are returned to them later on, because when they reach full retirement age, Social Security recalculates their payments upward.

Stan Hinden, a former columnist for the Washington Post, wrote How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire. Have a question for the Social Security Mailbox? Check out the archive. If you don't find your answer there, send a query.

Also of interest:

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Social Security expert Jonathan Peterson talks about his new book Social Security for Dummies.

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