Social Security benefits are not subject to federal income tax for some retirees, but are for others. High-income earners will be taxed on a portion of their benefits.
Unfortunately, because of the way Social Security tax rules are set, the number of retirees whose benefits are taxed increases every year. That’s why more seniors will have to give up some of their benefits to Uncle Sam in 2024.
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Social Security benefits become taxable when total income exceeds certain thresholds
First, it’s important to understand the IRS rules regarding when you must pay taxes on your benefits. What matters here is total income. This can be calculated by summing the following:
- 1/2 of the social security benefit amount
- all taxable income
- Some tax-exempt income such as interest on local bonds
Once you know what your total income is, you need to find out if your filing status exceeds the threshold for having your benefits taxed. The table below shows the total amount of income she must pay IRS taxes on her Social Security benefits.
Percentage of benefits taxed |
Single filer income |
joint filer income |
---|---|---|
up to 50% |
$25,000 to $34,000 |
$32,000 to $44,000 |
up to 85% |
Over $34,000 |
Over $44,000 |
Table source: Social Security Administration
If you earn less than this amount, you don’t have to worry about the federal government taxing your retirement check.If you make it moreHowever, some of your benefits are taxed, which reduces the amount of Social Security you actually have on hand to cover your costs.
Why are more people being taxed on their benefits each year?
Unfortunately, every year more and more people find themselves being taxed on their benefits. There’s a simple reason for that.
The income limits for which benefits are subject to tax are as follows: do not have It is linked to inflation. These do not increase over time and have remained the same since the benefits first became taxable. First he was introduced in 1983 when a 50% tax was introduced, then he was introduced in 1993 when his second category was introduced so that up to 85% of benefits were taxed on high earners. became.
It may be hard to believe that the income on which benefits are taxed has remained unchanged for decades, as prices and wages have clearly risen since then due to inflation and wage increases. Typically, people earn a little more money each year, but that doesn’t necessarily mean they have more spending power because prices also rise. But the IRS doesn’t take any of this into account when deciding whether to take a portion of your Social Security check.
These thresholds please do not This increase means that less than 10% of retirees who were originally taxed on Social Security will now lose some of their benefits, as more than half of all retirees will now lose some of their benefits. This means that a senior’s income, which increases year after year, suddenly exceeds the level at which they pay additional money to the IRS.
This situation is unlikely to change anytime soon, so current and future retirees should plan for the possibility that their benefits will be taxed in the future and avoid relying on their full Social Security benefits. need to do it. The tournament is over.