Social Security recipients can get an unexpected tax bill this Year

For older Americans still feeling the pinch of inflation, the record-high Social Security payment boost in 2023 may have an unwanted side effect: increased taxes.

While Social Security beneficiaries get inflation-indexed cost-of-living adjustments (COLAs), the amount of payments free from taxes has not changed in many years. Since 1984, pensioners have been required to pay taxes on their benefits if their adjusted gross income exceeds $25,000 for single people and $32,000 for married couples. This amount includes up to 85% of Social Security payouts.

Up to 85% of benefits may be subject to taxation for individuals making more than $34,000 and couples making more than $44,000.

Experts now predict that the current inflation crisis, coupled with last year’s 8.7% COLA hike (the largest since 1981), may eventually force more seniors into higher tax bands. The average monthly benefit was raised by roughly $140 as a result.

Social Security recipients can get an unexpected tax bill this Year

It’s practically a given if retirees have been lucky enough to set aside even a small amount. Sadly, we truly anticipate a significant increase in the number of folks who will be paying taxes on their social security benefits this year,” Senior Citizens League executive director Shannon Benton said.

According to the Social Security Administration, more than 66 million Americans who receive Social Security benefits got the increased payouts last year.
Even while some seniors have never had to pay taxes on their benefits, when they file their taxes this year, that is probably going to change.

Even before the record-high cost-of-living increase went into effect, a growing percentage of Social Security beneficiaries reported paying federal income tax on their payments. According to a recent Senior Citizens League poll, 23% of seniors who received Social Security for three years or longer reported paying taxes for the first time during the 2023 tax season.

When retirees are required to account for the significant payout increase they received the previous year, the tendency is anticipated to continue this year.

Benton remarked, “It’s kind of a Catch-22.” “It’s like, ‘All right, give me a raise, but withhold more from me.'” Thus, despite the fact that they sorely need the raise each year, the [tax] levels have never gone up.”

Next year, a greater number of Americans may be required to pay taxes on their benefits. This year’s 3.2% rise in payments to seniors will result in an average monthly benefit increase of around $59, or $1,907, for them. That is far less than the inflation-driven increase of the previous year, but it is still much more than the 2.6% average that was common prior to the epidemic.

Large COLA hikes have additional drawbacks.

According to Johnson, seniors who earn more each month may no longer be eligible for low-income programmes like SNAP, or the Supplemental Nutrition Assistance Programme (food stamps).

The Consumer Price Index for the Elderly, or CPI-E, is one measure that the Senior Citizens League has pushed Congress to enact. This proposal would index the adjustment to inflation exclusively for seniors. This index specifically monitors household expenditures for those 62 years of age and above.

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