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Social Security COLA To Affect The Amount Of Taxes

Social Security COLA
Social Security COLA; Source- The Motley Fool

The upcoming Social Security COLA in 2024 is expected to affect beneficiaries and retirees in many ways. Many people are interested in knowing what this adjustment would imply for their money, especially in terms of taxes, as the most recent data indicates that the COLA for 2024 may be about 3%, a considerable decrease from the 8.7% increase in 2023.

Social Security COLA

Social Security COLA; Source- People

Advantages Of Lower Social Security COLA

Even while a drop in the COLA from a year to the next could be alarming, there might be a positive aspect to this circumstance. Mary Johnson, a Medicare and Social Security policy researcher with the Senior Citizens League, has noted that certain Social Security recipients may pay less tax as a result of a lower COLA. This idea could initially appear contradictory because a lower COLA could indicate financial difficulty, especially for seniors who are already struggling to pay rising costs for necessities like healthcare and food. The COLA adjustment’s tax effects must be taken into account, though.

Social Security COLA For 2024

The sum of taxes that Social Security recipients must pay on their payments depends on their income levels. Your likelihood of having to pay tax on a percentage of your earnings from Social Security increases with your income. The significant 8.7% COLA hike in 2023 raised taxes overall by putting some beneficiaries in higher tax rates. A person’s combined income, comprising adjusted gross earnings, nontaxable interest, as well as half of their Social Security benefits, is normally taxable under current law if it reaches $25,000 for single taxpayers or $32,000 for those who are married filing jointly.

In other words, your benefits from Social Security may be liable to federal taxes if your income exceeds these levels. The good news is that certain Social Security recipients may pay less tax if the COLA in 2024 is smaller. According to The 401k Specialist, beneficiaries’ benefits are currently taxed on either 50% or 85% of them, depending on how much more they make than the base income threshold. Social Security benefits are not subject to taxation for anyone earning less than the base amount.

Amount Of Taxes Individuals Have To Pay

Individuals and couples whose combined incomes are more than $34,000 and $44,000, respectively, may be required to pay tax on a maximum of 85 percent of their income. Some beneficiaries might find themselves safely below these levels in 2024 because to the anticipated smaller COLA, which could lower their tax liability. It’s important to remember that each state has its own tax laws regarding Social Security payouts. Retirement citizens in these areas benefit from the fact that Social Security income is not taxed in 38 states and Washington, D.C. However, twelve states, Utah, Vermont,Colorado, Connecticut, Missouri, Montana, Nebraska, New Mexico,Kansas, Minnesota, Rhode Island, and West Virginia do tax Social Security to varied degrees.

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