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2024 Social Security COLA: If You Are Earning High, You Have To Pay More Taxes

Social Security COLA
Social Security COLA; Source- AARP

Benefits for Social Security recipients will increase in 2024 based on a 3.2% COLA. However, workers should be aware of a few thresholds, as the SSA has revealed updated figures for 2024. Here’s what you should know if you’re an employee hoping to ultimately qualify for retirement benefits or if you’re employed and getting benefits concurrently.

Social Security COLA

Social Security COLA; Source- MARCA

Increase In Tax Amount Of Social Security COLA

Social Security maximum taxable wages will increase between $160,200 in 2023 and $168,600 in 2024. Employees contribute 7.65% of their earnings, or the Federal Insurance Contributions Act, or FICA, to Social Security and Medicare. Self-employed individuals pay 15.3% toward employer and worker payments. 1.45% of that 7.65%, which is applied to all incomes, goes toward Medicare. Higher earners might have to pay an extra 0.9%. The remaining 6.2% goes to Social Security and is limited to the next year’s taxable maximum of $168,600. The Social Security Administration estimates that 6% of employees who pay taxes on Social Security earn more than the annual taxable threshold.

Eligibility For Retirement Benefits

Your retirement benefits may finally be received if you pay taxes to Social Security. Usually, to be eligible, you must have 40 credits or a minimum of 10 years of work experience. A maximum of four credits may be obtained annually. In 2024, the minimum wage needed to qualify for Social Security benefits will increase to $1,730 from $1,640 in 2023. Your payments will be lowered for beginning early if you file for Social Security between the ages of 62 as well as your full retirement age. If you keep working after a certain point, your income may be subject to what is called the retirement earnings test. The amount of earnings exempted from the pension earnings test will increase from $21,240 to $22,320 in 2024. Benefits withholding will amount to $1 for each $2 in income beyond that ceiling.

Fortunately, after you attain full retirement age, the withheld funds are added to your monthly benefits. There’s a chance the lower earner can carry on working and get their entire Social Security income without paying any fines. It’s important to note that the year you reach full retirement age has a separate earnings test threshold. This will increase from $56,520 this year to $59,520 in 2024 for the months until you achieve full retirement age. For every $3 over the maximum in earnings, $1 in benefits is not released the year you reach full retirement age. When determining whether to take early retirement benefits, the income test is a crucial consideration.

$10,000 Of Social Security Benefits

If you begin benefits on January 1st, you will not be subject to the earnings test and can earn up to $10,000 a month before your birthday. Federal taxes may apply to income from Social Security benefits. Your combined income determines the tax rate on that income. This is computed by adding the adjusted gross earnings and nontaxable interest to half of your benefits. If your total income falls from $25,000 to $34,000 for solo tax filers, or from $32,000 to $44,000 for married couples filing jointly, you may be required to pay tax on as much as half of your benefits.

If you file separately and your total income exceeds $34,000, or if you are married and your combined income exceeds $44,000, you may be subject to as much as 85% of the benefits you receive is taxable. There is no annual variation in these thresholds. Over time, though, a larger portion of benefit income is liable to taxes as it rises annually due to cost-of-living adjustments. Due to the 8.7% cost-of-living adjustment for 2023, a greater number of recipients may be subject to federal income taxes on their benefit income in April. So that seniors pay less in taxes on their benefit income, the TSCL is pushing for a yearly adjustment and updating of the tax thresholds.

 

 

 

 

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