Social Security has been around for a while. Thus, one can presume that the rules of the program have always been the same. In actuality, though, Social Security is subject to annual adjustments depending on things like inflation and salary growth. And a few of those modifications might have a significant effect on elders. For instance, Social Security users’ monthly payments will increase by 3.2% in the upcoming year. Even while the rise isn’t as significant as it was in 2023, it’s still a sizable gain by Social Security terms.
In addition, seniors who work and get Social Security benefits before reaching full retirement age in 2024 will have the option to increase their income without affecting their benefits. To keep busy and make ends meet, a lot of retirees choose to function in some form. Those who are in that boat now have more flexibility. However, there will be another significant adjustment to Social Security starting in 2024 that would affect highly paid workers. And you’ll need to prepare for that transition if you fit that description.
Get Ready To Pay Additional Taxes
The majority of Social Security’s funding comes from payroll taxes. Additionally, a wage cap that determines the amount of wages liable to taxes related to Social Security is implemented annually. Wages as much as $160,200 were subject to Social Security tax in 2023. However, that maximum will increase to $168,600 in 2024. Therefore, higher incomes will be obligated to contribute taxes on an extra $8,400 in wages overall. The good thing is that if you’re a worker with a salary, you won’t be responsible for covering the full increase on your own. Instead, you and your employer will get to divide it. If you work for yourself, though, you will be responsible for paying that increase on your own.
A Flawed Framework
Because it might enable extremely high earners to avoid paying Social Security taxes on all or only a small amount of their income, many argue that establishing a wage cap for tax purposes is unfair. Consider a person who makes $2 million annually. That person’s Social Security tax payment is less than 10 percent of their total income. In other words, suppose that in 2024 you make $168,600 and your neighbor makes $500,000. Your share of Social Security taxes will remain the same even though their salary is three times higher than yours.
You should be aware, though, that although wages beyond the yearly threshold are not subject to Social Security taxes, they are also not taken into account for determining benefits. That somewhat balances things out. Naturally, some legislators are advocating for a significant increase in the Social Security tax wage cap. Some advocate for its total elimination. Such kind of changes could lead to a greater Social Security tax burden. Given that, paying taxes on an extra $8,400 in income might not seem like a big deal, particularly if you collaborate with your accountant to minimize the impact and make advance plans.
