- In 2024, high-income earners may pay more Social Security taxes.
- Additionally, working while receiving retirement benefits can have repercussions.
- Here’s what you need to know:
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Social Security recipients will receive increased benefits next year based on a 3.2% cost-of-living adjustment.
But based on the new numbers for 2024, there are some criteria workers should keep in mind. recently announced According to the Social Security Administration.
If you’re a worker who wants to eventually receive retirement benefits, or if you’re working and also receiving retirement benefits, here’s what you need to know.
The maximum Social Security taxable income will rise from $160,200 in 2023 to $168,600 in 2024.
Workers pay a 7.65% tax on their paychecks for Medicare and Social Security, also known as FICA, which stands for Federal Insurance Contributions Act. A self-employed person pays her 15.3% to cover both worker and employer contributions.
This 7.65% includes the 1.45% that goes to Medicare and is applied to all revenue. High-income earners may pay an additional 0.9%.
The remaining 6.2% is Social Security, which only applies to next year’s tax cap, which is $168,600.
Approximately 6% According to the Social Security Administration, a percentage of workers who pay Social Security taxes earn more than the taxable limit each year.
By paying taxes on Social Security, you may eventually be able to receive benefits after retirement.
Typically, at least 10 years of work or 40 credits are required to qualify. You can earn up to 4 credits per year.
The amount of income required for the Social Security credit is expected to increase from $1,640 in 2023 to $1,730 in 2024.
If you claim Social Security between age 62 and full retirement age, your benefits will be reduced if you start earlier.
If you continue to work and earn more than a certain threshold, you may be subject to the so-called retirement income test.
In 2024, the amount of income exempt from the retirement income test will increase from $21,240 this year to $22,320. For every $2 he earns above this limit, $1 of benefits will be deducted.
Fortunately, these deferred benefits are applied to your monthly benefits once you reach retirement age.
“It’s worth checking the criteria for low-income married people.” [two-earner] ” said Joe Elsasser, a certified financial planner and president of Covisum, a provider of Social Security claims software.
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Those low-income workers may be able to continue working without penalty and receive their full Social Security benefits, he said.
Importantly, the means test is different in the year you reach full retirement age.
In 2024, it will increase to $59,520 in the months leading up to full retirement age, compared to $56,520 this year. In the year he reaches full retirement age, he will have a $1 benefit deduction for every $3 he earns above the limit.
The earnings test is an important factor to consider when deciding whether to claim severance benefits early, Elsasser said.
The new cap for the year you reach full retirement age (nearly $60,000) also presents an opportunity, he said.
For example, if you reach full retirement age in July, you can earn about $10,000 a month by your birthday and may not be means-tested if you begin receiving benefits on January 1st. Elsasser said.
Income from Social Security benefits may be subject to federal tax.
The rate at which that income is taxed is based on your total income. This is calculated by adding half of your benefit plus your adjusted gross income and tax-free interest.
Up to 50% of benefits for individual tax filers with combined income between $25,000 and $34,000, and between $32,000 and $44,000 for married couples filing jointly. You can pay taxes.
Up to 85% of your benefits can be taxed if your combined income exceeds $34,000 and you file separately, or if you are married and earn more than $44,000.
Remarkably, these thresholds do not change from year to year. However, cost-of-living adjustments increase your benefit income each year, resulting in more taxes being owed over time.
More beneficiaries could end up paying federal income taxes on their benefit income next April due to an 8.7% cost-of-living adjustment in 2023, according to a study by the Seniors Federation. . A bipartisan seniors’ group advocates for the tax base to be updated and adjusted annually so that seniors don’t have to pay as much tax on their benefit income.
“Certainly there are growing concerns about taxation,” said Mary Johnson, Social Security and Medicare policy analyst at the Seniors Federation.