Social Security is a major source of income for many elderly. Additionally, those monthly payments may be the only reliable source of income for several individuals. If that describes you and your income from sources other than Social Security is almost nonexistent, you might be entitled to avoid paying federal taxes on your benefits. However, the federal government may tax you on Social Security benefits if you have access to other sources of income in retirement (that is a much better scenario). Indeed, it’s likely that a higher percentage of seniors than in previous years will have to pay taxes on their benefits from Social Security in 2024. Here’s the explanation.
Thresholds For Taxes Are Low On Benefits
You must compute your provisional or else combined income to decide whether you will be required to pay tax on Social Security. This is accomplished by deducting 50% of your yearly Social Security payment, all of your taxable income (such as withdrawals from a standard 401(k) or IRA), plus nontaxable interest (such as the interest paid on municipal bonds), and adding up all of that. You run the danger of having to pay taxes on your payments from Social Security if you’re single and your combined or provisional income is $25,000 or more. If your combined or provisional income equals $32,000 or more and you’re married, the same applies.
These criteria are quite low. Therefore, it’s not unusual to find yourself in a situation where you have to pay taxes on your Social Security income. It’s also likely that in 2024, a greater number of seniors will pay taxes on Social Security than in previous years. This is so because it has been decades since the referenced limits for combined or else provisional income were adjusted. However, a yearly cost-of-living adjustment (COLA) is available for Social Security income to reflect inflation. Benefits are also increasing by 3.2% this year. Therefore, just as a result of that rise, there may be an increase in seniors submitting taxes upon receiving Social Security benefits.
The average per month Social Security payment was $1,848 before the 3.2% COLA this year. It is currently $1,907. That’s a $708 annual difference, or $59 per month. In the meantime, suppose you were unmarried and your combined or provisional income was $24,800 before 2024. If that’s the case, federal taxes on Social Security would not apply to you. However, if your Social Security benefit is now $700 more annually, half of that amount is deducted from your provisional or mixed-income, bringing your total income just above $25,000, the threshold at which taxes become due.
Can Social Security Taxes Be Avoided?
If you are already retired, you may be able to reduce the amount of withdrawals you make from a typical retirement plan in any given year, therefore avoiding taxes on your Social Security income. That’s hardly a great answer, though, as it can mean you don’t have enough money to survive. All told, the greater that Social Security payouts continue to expand, the more people can be harmed by the archaic laws that determine the way those payments are taxed. Considering that living expenses and benefits have increased significantly since those taxes were set, it would be beneficial for legislators to reevaluate the standards for imposing such taxes.
