The novel coronavirus is changing the world and the United States is no exception. From closing schools and businesses to entire states declaring a state of emergency, the aggressive spread of this novel coronavirus is making all of us rethink our plans and reshape our lives.
COVID-19 initially started in Wuhan, within China’s Hubei province, and made its way across China’s borders to the rest of the world. South Korea and Japan were among the first countries to be hit by the outbreak but Italy rapidly became the most affected. South Korea has been performing drive-thru coronavirus testing sites, and the United States has restricted inbound travel from Europe for a period of 30 days.
It might seem like a scenario from a Hollywood movie but it’s actually our reality now. Coronavirus is going to affect almost every aspect of our lives to some extent and that includes the most popular social program in the history of the United States: Social Security.
If you’re among the 64 million people benefiting from Social Security every month, you can relax for the moment. That’s because you will still receive Social Security benefits on an uninterrupted basis. More than that, Social Security is not running out of cash, despite what many people think.
Nevertheless, there are going to be some changes with respect to the Social Security program, as a consequence of all the mitigation measures carried out by authorities in their fight against the spread of the novel coronavirus. Here’s what you should expect:
Lower payroll tax collection for Social Security
Perhaps the first and widest impact of COVID-19 on the Social Security program will be a lower payroll tax collection in 2020.
Currently, the payroll tax on earned income, including wages and salaries but excluding investment income, is 12.4%. This year, the payroll tax applies to all earned income between $0.01 and $137,700 while earnings above $137,700 are free of taxes. Due to all sorts of major events being canceled as well as people working from home, we’re going to see a snowball effect with workers making less income in 2020 unless the federal government does something to help them in these unprecedented times.
A paid-leave policy would be of great help, given that less income earned equals less payroll tax revenue collected by the Social Security program.
This is bad firstly because the payroll tax is Social Security’s power- engine. It helped generate $885 billion of the $1 trillion collected in 2018. Taxes on benefits and interest income on Social Security’s asset reserves added another $118 billion to the equation. Weaken the payroll tax collection and the Social Security implicitly gets weaken.
Secondly, according to forecasts of the Social Security Board of Trustees, 2020 will be the first time since 1982 that the program will expend more than it collects. The net-cash outflow was expected to reach around $4 billion in 2020, which doesn’t even come close to Social Security’s $2.9 trillion in asset reserves. However, if the earnings of American workers are seriously affected by mitigation measures undertaken to prevent the spread of coronavirus, the net-cash outflow could be much larger than expected in 2020.
High chances of a lower COLA in 2021
The immediate effect most specialists envisage that the coronavirus might have on Social Security is on its cost-of-living adjustment, also known as COLA.
In simple terms, Social Security’s COLA is the increase from one year to the next in Social Security benefits to counteract inflation. It is designed to maintain benefits at the same level as the rising price of goods and services.
The COLA is calculated by comparing the average third-quarter reading (July – September) of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the current year to the average third-quarter reading of the CPI-W in the previous year. If there’s a measurable increase (at least 0.1 percent) from one year to the next, benefits go up as well and rounded to the nearest tenth of a percent. If there is a decline in CPI-W reading from year to year, beneficiaries will not see any increase in their benefit payment in the upcoming year.
The CPI-W can be affected by various spending categories such as shelter, medical care, food costs, energy prices and the like. With the increased inflation in recent months as well as the lower energy prices, Social Security beneficiaries might have a low or inexistent COLA in 2021.
Limited in-person assistance from SSA employees
The third change that we’re most likely going to see in the following weeks or even months with regard to the Social Security program, is a reduced interaction between beneficiaries and Social Security Administration (SSA) employees.
It shouldn’t come as a surprise that the SSA has requested their employees to work remotely to the extent this thing is possible, considering that many other businesses have allowed their workers to perform their duties from home. More than that, SSA employees who are at higher risk of coronavirus exposure, such as the elderly ones, those who underlying health conditions, or are pregnant, have the “work at home quarantine” option no matter what.
SSA employees have also been informed that offices may soon become closed, depending on the spread of COVID-19 within the country. If this happens, the employees will have no other choice but to work remotely.
This means that in-person interaction with SSA employees may become limited for the foreseeable future. The silver lining in all of this is that the SSA’s online portal allows beneficiaries to sign up and apply for Social Security retirement benefits, spousal benefits, or disability income benefits, change their address, verify the status of an application or appeal, and so much more. SSA employees can also be contacted by phone if you have pressing matters that need to be addressed.