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This 30-Year-Old Social Security Rule Is Costing Seniors Billions Of Dollars

The changes to Social Security that will take effect in 2024 and their impact on benefits for seniors have been the subject of much discussion recently. When projecting how far your payments will go in the upcoming year, it’s crucial to consider what remains constant. One particular rule, which hasn’t been amended in thirty years, increases the costs for seniors each year it’s in place. Social Security beneficiaries were required to pay $47.1 billion in 2022 alone, and chances are the amount will be higher in 2023. What you should know about it as well as potential preventative measures are provided here.

The Way Social Security Is Funded

A 1984 government financial adjustment to the Social Security program is the justification for seniors forfeiting a significant portion of their benefits each year. Before this, payroll taxation that employees still pay and the interest earned from those taxes after they were invested in securities backed by the government were the two main sources of funding for Social Security for the government. That was effective for a time but worries about Social Security’s viability began to surface in the latter part of the 1970s and early 1980s. To add another revenue stream to the Social Security program, the government chose to impose a levy on certain seniors’ benefits.

This made it possible to tax seniors with provisional earnings, AGIs (adjusted gross incomes) of up to 50% of their Social Security benefits, including any nontaxable interest as well as half of their yearly Social Security payout of $25,000 or more for single people or $32,000 or higher for married couples. Subsequently, the government implemented an additional layer of benefit taxation in 1994. This made it possible for it to tax seniors’ benefits by up to 85% if their provisional income exceeded $34,000 for single people and $44,000 for couples who are married. These guidelines are still in effect today. These taxation thresholds, in contrast to other parts of Social Security, are not inflation-indexed. As a result, an increasing number of seniors are finding themselves returning a part of their total Social Security payment to the government as average benefit cheques climb over time.

What Can Be Done By Seniors

As much as everyone would like to be able to keep all of their hard-earned payments from Social Security, there are situations in which this simply isn’t feasible. If your provisional income surpasses the previously mentioned thresholds, a portion of your benefits from Social Security will be subject to taxes. Some individuals may be able to prevent benefit taxes by finding alternative ways to lower their taxable income. For instance, reducing your income at a job by switching to part-time work or, if you have any, depending more on your Roth savings because they are not deducted from your taxable income. However, even with this precaution, it will probably become more challenging to escape these low-benefit taxation limits due to the increasing cost of living. Thus, making arrangements for Social Security payment taxes is the next most beneficial thing you can do. These can be paid for during tax season, but it may be simpler to ask the SSA to deduct taxes from your income. You’ll be certain that whatever you get is yours in this way.

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