Inflation in medicine generally outpaces most other price indices, and 2026 is looking to be no exception. Last week we highlighted the deleterious effect Medicare increases have on Social Security monthly benefit Cost of Living (COLA) increases. In a year of elevated medical inflation, many Social Security recipients find that they will receive no net increase in monthly benefit payment, losing the entire COLA increase to monthly Medicare cost escalation.
We are fortunate in one respect, as the “hold harmless” provision in Social Security prevents net monthly benefits from decreasing. When any monthly retirement benefit increase is smaller than the corresponding Medicare cost increase, Social Security is not allowed to pass along the entire Medicare increase. Rather, it is held in abeyance for future years, and can be applied in a year when the benefit increase would otherwise be positive.
When this condition arises, Social Security is allowed to pick up some or all “suspended” increase(s) from prior years. Again, “hold harmless” restrains application of past unapplied increases at the level where nominal Social Security monthly benefit would otherwise go negative. This process is continued until the entire “suspended” Medicare increase has been eradicated.
Social Security recipients who are also enrolled in Medicare are subject to higher Medicare premiums if their incomes are above a certain threshold. Costs in excess of the Medicare base rate are dubbed IRMAA, for Additional Income-Related Monthly Adjustment Amounts. There are 5 levels of IRMAA surcharges, with the maximum being charged to Medicare recipients earning above $500k for Singles, or $750k for Married Filing Jointly. Recipients whose income puts them in higher IRMAA brackets are not protected by the “hold harmless” clause, and their benefit payments will be reduced by IRMAA.
Like income tax brackets, IRMAA brackets are adjusted for inflation. However, at this writing, Medicare is estimating that IRMAA brackets will be adjusted by only about 1.04% in 2026, supposedly based on the Consumer Price Index for all urban consumers (CPI-U). Our same government, using the same Index, but apparently not the same calculation, is estimating that our current 12-month inflation rate is 2.7%. This system is detrimental to America’s seniors.
Inflation reduces the purchasing power of every American dollar, whether earned in the past or in the current pay period. An unchanged monthly payment, whether from work or from a job, buys less than it bought last month, or in any past month. Over time, inflation erodes our lifestyles. Seniors, especially those on fixed income, are punished for a situation they cannot control.
Inflation has been tamed, although not quite all the way to the 2.0% annual target set by Federal Reserve (FED) Chairman Powell. Concurrently, government is approaching the September 30 end of Fiscal Year 2025. Now is the season when various prognosticators are busy estimating Cost of Living Adjustments (COLAs) for various and sundry programs administered at the Federal level.
For years, I have argued that there should be one, and only one, annual rate of inflation, with consequent COLAs. My pleas consistently fall on deaf ears, and varying COLAs continue to be applied by Congress, the IRS, Medicare, and various operating departments and agencies. Somehow, taxpayers seem to get shorted in the process, and next year is shaping up to be no exception.
Social Security and Medicare are irrevocably intertwined, as Social Security recipients have their Medicare Part B (and Part D, if applicable) premiums deducted from monthly benefit payments. COLA estimates for 2026 are looking minimal, beginning with an estimated 2.7% increase in Social Security monthly benefits. Today’s average Social Security payment is $2,002.39. Applying a 2.7% COLA would increase the average benefit to $2,056.45, an increase of $54.06.
Medicare cost projections have raced ahead of the reported 2.7% inflation rate, and are estimated to increase by 11.6% for 2026. From the current Part B monthly premium of $185.00, an 11.6% increase would add $21.46, arriving at a monthly cost of $206.46. The Net result for an average Social Security recipient would be a monthly increase of only $32.60, or 2.0%. Once again, we Senior Citizens (appear to) get slighted, incrementally reducing our purchasing power.
For lower-income Americans, whose Social Security Benefit payments are closer to $1,000/month, the Medicare Part B monthly premium adjustment is the same number of dollars ($21.46). However, the economic impact is far greater for these people, and the net loss to them is irreplaceable. But it doesn’t end there. For enrollees in the Medicare Part D Drug Plan, the estimated cost increase is 6%, again much higher than the 2.7% anticipated benefit increase. We lose again.
Wait, we’re not done yet. How about throwing at us another $100/year in out-of-pocket deductible costs, applied before any Medicare coverages kicks in? Somehow, that extra expenditure evades news purveyors, both in government and media. Quietly, it increases Americans’ costs and reduces our lifestyles.
“One step forward, two steps back” comes to mind. In the modern era of communications, lies abound, and none are so egregious as Lies of Omission. What we are not told far outweighs that which we hear about daily. The economic squeeze Americans have been experiencing for decades continues to erode our living standards. How can we reverse that?
Next week, we’ll tackle IRMAA adjustments, and it doesn’t get better.
Washington, D.C. has a penchant for “slick” names on legislation. Names frequently get initiated with acronyms ostensibly descriptive of actual legislative purpose (reality notwithstanding). One recent example is the S.E.C.U.R.E. Act, which was assigned the moniker Setting Every Community Up for Retirement Enhancement, an uncomfortable sequence of words at best.
This year, the acronym version of the Trump Tax Plan began with the vision of the President, and the acronym came later. Once the concept of doing a massive overhaul to the Tax Code in “One Big Beautiful Bill” was expressed, very little time passed before the OBBB moniker was ubiquitous. Once the presidential signature activated the changes, OBBB became the One Big Beautiful Bill Act (OBBBA), meaning that it is the law of the land.
Because most Americans are woefully ignorant of Tax Code details, we have been explaining several important provisions of OBBBA. The so-called “headliner” provisions pertain to actual tax rates and brackets, which needed to be made permanent. Failure of OBBBA would have imposed America’s largest ever tax increase on American taxpayers.
Everyone is affected by these and other provisions, some of which are receiving very little attention. Today, we begin with changes to Health Savings Accounts, or HSAs. Covered services have been expanded, primarily in the telehealth and cost-sharing arenas. Avoiding hospital visits was a goal during COVID-19, and many of the conveniences from that era are now HSA available.
Several business-friendly provisions will help everyday Americans by reducing inflationary pressures. Reducing the cost of doing business in the US allows companies to reduce prices, providing relief for families. Full expensing of Research and Experimentation has been restored, thereby encouraging companies to perform these scientific functions domestically. In all likelihood, the results of these efforts will create thousands of American manufacturing jobs.
Paid Family and Medical Leave tax credits created under the Tax Cuts and Jobs Act of 2017 (TCJA) were made permanent. Employer-paid Child Care Credit was expanded and made permanent. Gift Tax and Estate Tax limits, made higher by TCJA, have been made permanent.
OBBBA is a gigantic and far-reaching modification to our massive U.S. Tax Code. In its reported 940 pages, we can find something for everyone. Yet the biggest change (for most people, anyway) was what didn’t happen. In the absence of OBBBA, Americans were scheduled to be hit with a 2026 tax increase in the thousands of dollars annually. Despite the lack of any cooperation from Trump’s opposition, the job got done.
As further provisions get finalized and published, we will cover further topics of interest.
Many said it couldn’t be done, and others (including me) were merely skeptical to some degree. Back in January 2025, President Trump 47 indicated to House Speaker Mike Johnson that he did not want to partition Trump’s tax plan into several components. That created a bit of an uproar in Washington, D.C., as that is “NOT THE WAY WE’VE ALWAYS DONE IT.”
What I, and many others, didn’t give enough credit, was the political and practical power of Trump. Through pure force of will, he gathered support in Congress, and across the country, for creating One Big Beautiful Bill, and skeptics everywhere pooh-poohed his chances of success.
Fittingly, on Independence Day, we kicked off a year of counting down to our nation’s 250th year of Independence, with the signing of One Big Beautiful Bill (OBBB) into the One Big Beautiful Law (OBBL). The ceremony was not without fanfare, I might add. You know — Trump Style! Now that the ink has dried, I am 86ing the term OBBB, in favor of OBBL.
Reportedly comprised of 940 pages, OBBL will impact virtually every American. We will begin by explaining some key provisions we believe will have the largest impact on readers, listeners, clients, and friends.
Tax Rates and Brackets. The Tax Cuts and Jobs Act of 2017 (TCJA) reduced Individual Income Tax Rates, while simultaneously widening Individual Income Tax Brackets. In combination, these items assured a vast majority of Americans receive a substantial tax cut (for 8 years). As of the OBBL, those tax reduction provisions have been codified and made permanent.
Standard Deduction. For all taxpayers, the Standard Deduction, which doubled in TCJA, has increased an additional 10%, for each of the 4 years of the Trump 47 Presidency. Larger Cost of Living Adjustments (COLAs) make it even better for taxpayers in the lowest three Tax Brackets.
Child Tax Credits. For 40 million Americans with children, the Child Tax Credit was increased to $2,200, made permanent, and inflation indexed.
No Tax on Tips. Millions of Americans in jobs that rely on Tip Income will pay no Income Tax on up to $25,000 of Tip Income annually.
No Tax on Overtime. For approximately 80 million Americans, up to $12,500 of annual overtime pay is no longer subject to Federal Income Tax.
Charitable Deduction Improvement. A new, above-the-line deduction for Charitable Contributions up to $1,000 person, or $2,000 per couple, allows everyone to reduce taxable income for donations to their favorite charities.
By far, OBBL’s most important provision is the permanent codification of tax provisions from TCJA that were set to expire on December 31, 2025, resulting in a record-breaking tax increase on Americans. In coming weeks, we will report on further provisions that affect great numbers of American taxpayers.
The IRS requires adherence to very specific rules for family employment, and failure to abide by those rules can be costly. On the theoretical side, there is no age limit for a child to be hired by his or her parents’ business. But since the compensation has to reflect actual duties being performed, there are practical limits regarding the age of the child. Only in the most unusual and specific circumstances can children under 14 actually earn income.
As with every aspect of dealing with the leviathan U.S. Tax Code, pitfalls abound, and failure to properly address the rules can bring trouble. We don’t profess to know and understand every detail, as we are not Tax Preparers, CPAs, or Attorneys. However, as Certified Financial Planners®, we are qualified to offer Tax Planning recommendations for you to discuss with your tax professional.
Today’s discussion is limited to personal businesses, owned solely by one or two parents of the child. These entities present specific opportunities for tax-saving employment of young family members, but caution is required to adhere to State and Federal laws and regulations.
Employing your children requires treating them as actual employees. Whatever payroll system is used in your business, your kids need to be enrolled as employees. Critical to success is specifying duties that are applicable to your business, as well as appropriate for young workers.
IRS has specific rules for taxation of family members under 18. Rules can be utilized to increase your business profits, while simultaneously offering the kids valuable experience. Taxation varies according to age, and must be understood by the parents before making any arrangements.
Children under age 14 cannot work any hours, except for occasional exceptions, such as babysitting and newspaper delivery.
Children ages 15 and 16 can be employed, but have strict limits on hours per day or week, and whether school is in session. These rules are published by the IRS, and are further restricted in some States.
Once reaching age 16, but before age 18, children may work unlimited hours, but are expressly banned from certain “hazardous jobs,” as defined by the IRS.
Wages paid to children of a business owner reduce the owner’s taxable income. Each child becomes a taxpayer with a Standard Deduction of $15,000, paying no Federal Income Tax up to that amount. Note that IRS does not require parents to withhold payroll taxes for their children under 18.
Taking advantage of opportunities presented with self-employment by hiring your own children is not without potential pitfalls. Anyone contemplating hiring a child should thoroughly research state and Federal rules. Americans of every age would be better off learning more about the Tax Code.
Living the American Dream has long been thought to mean owning your own home. I understand that sentiment as well as anyone, having been a homeowner for five decades. For many people, the American Dream doesn’t stop there. Those working for themselves often desire a level of independence and control not found in large organizations. Concurrently, most parents desire to have their children live even better than they themselves do.
While not for everybody, self-employment, in one form or another, constitutes nearly one quarter of the workplace. Having devoted my adult lifetime to avoiding having a non-family boss, I understand most of the pros and cons of self-employment. Family relationships, income taxes, flexibility, responsibility, and a host of other factors are affected by employment status. How a self-employed individual and his or her family deal with each determines the financial and emotional outcome of a lifetime’s endeavors.
Successful self-employed people have the opportunity to jump-start their children’s retirement savings before those offspring even reach age 18. Understanding both the opportunities and pitfalls of employing one’s children is crucial to success. Errors can be costly to all involved.
With summer upon us and school out of session, many people are presented with an opportunity to help their kids. Employing children in a family business also offers financial benefits to everyone involved. The kids get their first exposure to both the demands and rewards of having a job, while parents are able to reduce their own taxable income, rather than simply gifting money to those kids.
Paying post-high-school educational expenses (outside student loans) for children generally requires after-tax dollars. Parents’ tax rates are generally much higher than the rates their children pay, which can often be held at zero with careful income planning. Paying wages to the children and having them help to fund their own higher education (using their own tax rate) generates more post-tax dollars.
Individual Retirement Accounts (IRAs) require that contributions not exceed earned income. Many children do not have jobs in their high school years, and cannot contribute to IRAs. Employing children affords them the opportunity to contribute to their own IRA. Importantly, parents may gift them the money for their contributions, but so long as their kids receive a W-2 for income verification, no one cares where the deposited funds originate.
Taking advantage of opportunities presented with self-employment by hiring your own children is not without strict and numerous rules. In coming Blogs, we will discuss more opportunities and many potential pitfalls associated with hiring and paying young family employees.
At this juncture, the “One Big Beautiful Bill” budget proposal supported by the current Administration is in limbo. Following an original Trump Administration proposal, the House of Representatives dissected and reassembled various provisions, winding up with a version that passed a House vote by the slimmest of margins — 1 vote. From there, the Bill was delivered to the Senate, where it is currently undergoing increased scrutiny.
Major points of dispute fall in the arena of Tax Policy, including changes to the Individual Income Tax Form 1040. Particularly contentious is the deduction for State and Local Taxes, or SALT, which was limited for the first time in the Tax Cuts and Jobs Act of 2017, or TCJA. From the current TCJA $10,000 limit, the House version raised the SALT Deduction to $40,000, but many Senators are unhappy with that change. A compromise is imminent.
While SALT is sucking oxygen from the negotiations and media broadcasts, one interesting proposal is gaining quite a bit of bipartisan support. Originally dubbed “Money Accounts for Growth and Advancement” (MAGA), the House version substituted the moniker “Trump Savings Accounts.” This provision would apply to births in the USA during calendar years 2025 through 2028.
Every child born in that window would receive a one-time $1,000 payment, placed into an untouchable account until at least age 18. While invested in the S&P500 Index Fund (SPY), these accounts should grow substantially over the children’s developing years. This proposal may sound like a good idea, as Trump Account funds could be used for education, buying a home, or saving for retirement. Unfortunately, funding newborns with taxpayer dollars is distasteful to taxpayers.
Also, last week, I reported on a proposal within Congress to grant access to a 401(k)-style account to workers not covered at their place of employment. On its surface, that proposal seemed unique and interesting. Then I read the second paragraph, where voluntary employee deposits are matched, not by employers, but by taxpayers! As a taxpayer, I do not choose to be forced into matching contributions to other Americans’ retirement benefits. Sorry, not sorry.
Workers without a 401(k) Plan have available options. Whether Traditional or Roth IRAs, they allow us to fund our own retirements.
I do not care to become a Sugar Daddy for every child born in this country, legal and otherwise. Nor do I care to supplement retirement accounts for people I don’t even know.
The sad truth is that our government is caught in an overspending debt spiral. There is a difference between proposals that sound good and good, sound proposals.
Face it, most Americans are just plain nice people. We are a considerate and generous population. America is also a wealthy country, blessed with natural resources, educated people, and an economic system that fosters opportunity.
In the aftermath of World War II, our economy boomed, our population mushroomed, and prosperity reigned supreme. Wealth was created and expanded as never before, and today Baby Boomers (born 1946-1964) are in the early stages of passing along the resultant wealth. Various estimates of the magnitude of this “great transfer” surround $100 trillion (14 total zeroes).
However, for the first time in history, Americans are beginning to doubt prospects for their offspring to live as well as (or better than) they have done. Household debt is skyrocketing, incomes are not rising as fast as in past decades, and a heavy tax burden is contributing to Americans’ changing sense of well-being and optimism. Perhaps the most insidious danger to Americans’ futures is compounding inflationary price pressures, especially over the past four years.
Today’s younger generations are struggling with financial pressures exceeding their parents’ situations. Many resort to seeking assistance from their parents, regardless of parental ability to pay. As generous, kindly people, parents often provide free rent, co-sign student loans, and/or hand out cash supplements, even while the parents are striving to save sufficient wealth for a comfortable retirement that can easily reach or exceed 30 years.
Washington, D.C., where spending other peoples’ money for decades is the norm, has placed the US in an untenable financial position. Our National Debt recently passed the $36 trillion (12 zeroes) mark, and we are hurtling toward $37 trillion. Interest on the debt now exceeds $1 trillion annually, adding to inflation and higher interest rates.
Failure to address the problem in any significant manner is the hallmark of an elected government that is more concerned with re-election than with saving the country. Elected officials curry favor with their constituents as they overspend tax revenues. At the household level, when parents curry favor with their children, there is a strong likelihood that they will punish their own future comfort and security. In both cases, these actions can best be described as being “too nice.”
For a better understanding of inflation, I suggest you go to the website chapwoodindex.com. Ed Butowski created the index years ago and updates it semi-annually. It shows that, for the most part, actual inflation in major metro areas averages over 10% annually, regardless of who is in the Oval Office. Keeping up individually means trying not to be “too nice.”
Look out for number one to ensure financial success. Maybe it will rub off on government lawmakers. (I’m not holding my breath.)
Living and working in Florida is, in many ways, its own reward. Everyone knows that we have no State Income Tax, but our state extracts operating income from residents, as well as tourists, through the Sales Tax. So, when the State says we can avoid Sales Tax on certain items at certain times of the year, we should plan our purchases accordingly.
Unknown to many shoppers, local and otherwise, Sales Tax Holidays abound in Florida’s summer months. Knowing and understanding the timing of purchases during these Sales Tax Holidays can save consumers some hard-earned cash on seasonal, but necessary, purchases. In this Blog, we will outline and explain how to save a few bucks every summer.
June brings Hurricane Season, and our annual Disaster Preparedness Sales Tax Holiday, affecting many supplies, from small (think: batteries), all the way up to $3,000 for portable generators, saving big bucks. This year’s dates are June 1 through June 14, 2025.
Our Freedom Month Sales Tax Holiday runs throughout the entire month of July, and exempts supplies for outdoor activities. Admission to many events and performances are included.
Back-to-School Sales Tax Holiday comes next, this year from July 29 to August 11. During this period, school supplies, clothing, and some devices are exempted. This one can really ring up the savings, especially if you have school-age children. Computers up to $1,500 are tax-exempt during this period.
September brings Tool Time Tax Holiday, running from September 1 to September 7. As the weather begins to become less oppressive, projects and outdoor activities require tools and supplies to complete, and this is when Floridians can reduce project costs. Manual and power tools are included.
Unless Floridians need something immediately, understanding Sales Tax Holidays is a great way for us to plan purchases and save money.
Detailed information regarding Florida’s Sales Tax Holiday website can be found at floridarevenue.com/Pages/SalesTaxHolidays.aspx. Items and price points qualifying for each category are listed and clearly explained, with PDF pages available for reference while shopping. For each Holiday, click on the “Consumers” tab for non-business shopping guides, then on the PDF.
Years of inflation have made necessary items more expensive than ever. Also escalating over time have been sales tax percentage increases, which were frequently pitched to voters under the guise of “helping the children.” As a result, Sales Tax Holidays pay larger dividends to shoppers than ever before.
We love our home state, but we don’t feel the need to shower it in extra financial affection.
“We love paying taxes”, said no one ever. “The price of living in a free society,” say many. However, some taxes are worse than others, and one largely unknown and clandestine tax has achieved Adam’s dubious distinction of “most despised.” IRMAA (“Erma,” we call her in jest) is Social Security’s method of charging an income tax on recipients of monthly Retirement Benefits who, in the opinion of the Agency, apparently have “higher-than-needed” incomes.
It is bad enough that taxation of Social Security benefits is already skewed by income. Benefits are either not taxed at all (for lowest income Americans), or half taxable (for mid-range incomes), or 85% taxable for higher income people. This is a significant disparity already, but IRMAA makes the matter even worse.
According to the Social Security Administration, the government pays 100% of Medicare “A” (hospital charges) for almost all Americans. They also subsidize about 75% of Medicare “B” (doctors, etc.) premiums for 90%+ of enrollees. The others (7% to 10%) are charged a higher percentage of actual Part “B” costs, simply because they have higher incomes and are therefore assumed to be able to cover more of their own medical expenses.
For 2025, the base monthly cost of Medicare “B” is $185.00 per enrollee, and for optional Medicare “D” prescription drug plan, $36.78. For Medicare enrollees who are also collecting Social Security monthly retirement benefits, Medicare premiums (plus IRMAA charges when applicable) are deducted from monthly benefit payments. Out of sight, out of mind, unfortunately.
Everyone should have an online Social Security account, regardless of their age. It is incumbent on every individual to verify their own earnings record at Social Security, as that will determine their Primary Insurance Amount (PIA). Errors along the way may be difficult to correct later.
The biggest problem is that the application of IRMAA surcharges is based on the recipient’s income from 2 years earlier. This is due to the lag between earning money and filing Personal Tax Returns on those earnings. By the time IRMAA charges are determined, the recipient’s circumstances may have changed dramatically. For enrollees whose income has fallen recently due to changes such as retirement, there is a procedure to reduce or eliminate IRMAA charges.
Social Security has a Form called SA-44, Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event, which is used to request a reduction or elimination of IRMAA charges. Qualifying events include Marriage or Divorce, Death of a Spouse, Work Reduction or Stoppage, Loss of Income-Producing Property, Loss of Pension Income, and/or Employer Settlement Payment. For Medicare enrollees who incur a qualified event and reduced annual income, use the SA-44 process to adjust your dreaded tax (even retroactively to January or the actual date of the event).