New year, new benefit changes

Updated 11:54 a.m. ET, Jan. 11, 2024

It’s a new year and there are new benefit amounts that take effect at the beginning of each year as well as basic pay adjustments for federal workers under the General Schedule and cost of living adjustments for retirees. For most feds, there are changes in the premiums paid for Federal Employees Health Benefits. For retirees who are working after retirement, there are also new earnings limits applied to their FERS Special Retirement Supplement and Social Security benefits. 

Here are the changes to watch for this month.

Cost of Living Adjustments

Retired federal employees and entitled surviving family members of deceased federal employees and retirees get a cost-of-civing cdjustment effective on Dec. 1, 2023, which should have been reflected in their benefit payable on Jan. 2, 2024. If you just retired on Dec. 31, 2023, you need to wait until next January as your first COLA will be paid on Jan. 2, 2025. Annuitants who retired earlier in 2023 will receive a prorated COLA during their first year on the annuity rolls. The proration is based on the number of months between the start date of the annuity and the effective date of the COLA. For example, if a CSRS employee had retired on Dec. 31, 2022, they would have received 11/12 of the 3.2% COLA, or a 2.93% increase, on Jan. 2, 2024.   

Civil Service Retirement System 

CSRS COLAs apply to all annuities, regardless of the age of the annuitant. CSRS annuitants who have been receiving retirement benefits for at least one year received the full 3.2% COLA.  

Federal Employees Retirement System 

In general, FERS employees who retire before age 62 do not see a COLA in their retirement benefit until the year they turn 62. There is an exception for disability retirees, survivor annuitants and those who retire under special provisions, such as law enforcement officers and firefighters. COLA increases for FERS annuitants eligible before age 62 only apply to the retiree’s basic annuity (not the annuity supplement). For spousal survivor annuitants, the COLA applies to both the basic survivor annuity and the FERS annuity supplement (payable to survivors of retirees who are under age 60). By the way, the FERS COLA for 2023 is only 2.2% due to the FERS rules that provide a "diet" COLA if the rate of inflation is higher than 2%.

Social Security COLA 

The 3.2% COLA will begin with benefits payable to more than 66 million Social Security beneficiaries this month.  

FERS Special Retirement Supplement Earnings Limit 

FERS retirees receiving an annuity supplement are subject to an earnings test. In the spring, around May, OPM sends an annual survey to annuitants who receive the SRS, so they can report their earnings from the previous year. The annuity supplement will be reduced effective with the July 2024 FERS annuity payment (payable on Aug. 1) if the earnings were more than the limit established for the prior year by the Social Security Administration. The reduction is $1 for every $2 earned over the minimum level. 

The Social Security earnings limit for 2023 was $21,240, up from $19,560 for 2022. The survey mailed around May 2024 will be for reporting earnings from 2023 earned after retirement and before age 62 above the 2023 earnings limit. For 2024 earnings, the limit is $22,320. 

Social Security Earnings Limit 

The earnings limit for workers who are younger than their full retirement age increased to $22,320 for 2024 as well. For every $2 earned over this limit, Social Security will deduct $1 from benefits. If you have earnings over the limit, notify Social Security immediately to avoid a large overpayment of your Social Security benefits.  If you receive too much in benefits, Social Security will send you information regarding the options for repaying the amount owed.    

For Social Security beneficiaries who reach the full retirement age in 2024, you are considered retired in any month that your earnings are $4,960 or less and you did not perform substantial services in self-employment. If you earn over this limit, Social Security will deduct $1 for every $3 earned over this limit. There is no limit on earnings for workers who are full retirement age or older for the entire year. That means if you are employed in federal service and have reached your full retirement age, you can start receiving Social Security retirement benefits even though you haven’t retired. In addition, CSRS employees are not affected by the Windfall Elimination Provision or the Government Pension Offset until they begin receiving their CSRS retirement benefits.   

Maximum Taxable Wage for FICA 

For employees, there is an increase to the amount of income subject to the FICA tax.  Based on the increase in average wages, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $168,600 in 2024 from $160,200. 

Medicare 

If you plan to enroll in Medicare Part B and you missed your Initial Enrollment Period at age 65, there is a General Enrollment Period every year between Jan. 1 and March 31. Part B coverage will start the month after you sign up. You might have to pay a permanent late enrollment penalty if you don’t qualify for a Special Enrollment Period. Medicare premium for Part B is increased 10% for each full 12 months during which you could have been, but was not, enrolled.  

The standard monthly premium for Medicare Part B enrollees will be $174.70 for 2024, an increase of $9.80 from 2023. You’ll pay a higher premium for Part B if your modified adjusted gross income, as reported on your IRS tax return from two years ago, is more than $103,000 if you file an individual tax return or more than $206,000 if you are married and file a joint tax return. Most people pay the standard rate; however, the Income Related Monthly Adjustment Amount is an extra charge added to the premium for higher earners. 

Postal Service Health Benefits Program 

The PSHB will not begin until Jan. 1, 2025. However, most Postal Service annuitants and their eligible family members who are entitled to Medicare Part A will be eligible to enroll in Medicare Part B during a six-month special enrollment period . Individuals who qualify for the SEP will receive a separate notification before April 1, 2024, according to the Postal Service Reform Act. 

Federal Employees Health Benefits 

The new rates for your FEHB plan take effect on Jan. 14, 2024 for most federal employees, however, the rates for retirees took effect on Jan. 1 and will be adjusted in the CSRS or FERS benefit that you receive on Feb. 1 (which is your January annuity payment).   

Thrift Savings Plan 

The annual elective deferral limit (i.e. limit on employee contributions) for 2024 is $23,000 (increased $500 from 2023) and the catch-up contribution limit for employees turning 50 in 2024 or older remains unchanged at $7,500. These limits apply to your contributions and do not include matching or automatic government contributions. If you’re turning 50 or older and exceed the IRS elective deferral limit, then your contributions will automatically start counting toward the IRS catch-up limit.  

In mid-January, the TSP will mail IRS Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to participants who received a withdrawal between Jan. 1 and Dec. 27, 2023, and/or a taxed or foreclosed loan between Jan. 1 and Dec. 31, 2023. Withdrawals processed on Dec. 28 and 29 are taxable income for 2024. A copy of your 2023 Form 1099-R will also be available in your My Account secure participant mailbox by mid-February. If needed, corrected forms will be issued within three weeks of verifying the correction. If you’re expecting a corrected Form 1099-R, you may wish to wait to file your taxes until you receive the form. The content on the back of your 2023 Form 1099-R will look different from previous 1099-R forms you may have received from the TSP. For some reason, the content will include standard IRS information that may not be relevant to the TSP.  It is a good idea to consult a qualified tax advisor or the IRS for questions about filing your taxes. 

TSP life expectancy installments will be recalculated according to required updates to the assumptions used to determine those amounts. In early January, the TSP will send notices with more information, including recalculated amounts, to participants receiving life expectancy installments. Notices will go out based on participants’ delivery preferences on file (by mail or online through the secure participant mailbox in My Account). 

Required minimum distribution notices will be mailed in early January to separated participants who will be 73 and older in 2024 and to spousal beneficiaries with RMDs due for the 2024 calendar year. If you haven’t done so already, the TSP encourages you to add direct deposit information in My Account to receive your money quickly and easily.