As we enter 2024, several key changes will impact Social Security payments, affecting everything from monthly benefits to taxes. There are both good news and bad news: good because the maximum payment will raise, but bad because that extra money come with extra taxes.
The most immediate change? A 3.2% increase in monthly Social Security benefits, a welcome bump following inflation-driven adjustments in previous years. While not as dramatic as the 2023 and 2022 increases, this bump translates to an average of $59 more per month, bringing the average benefit to $1,907.
A Few Social Security Retirees to Claim $4,873 Monthly
But for a select few, the numbers truly jump. The top Social Security benefit in 2024 will hover around $4,873 per month, an increase of $318 compared to 2023. This stratospheric figure, however, belongs to a highly exclusive group – those who consistently maxed out their taxable earnings since age 22 and delayed claiming benefits until age 70. For most recipients, the average benefit remains the more relevant benchmark.
However, these increased benefits come with a potential caveat: more taxable income. A common misconception exists that Social Security benefits are tax-free, a misunderstanding that can blindside some recipients come tax season. In 2024, more individuals may find themselves crossing the threshold where a portion of their benefits becomes subject to federal income tax.
Understanding your tax liability is crucial, emphasizes Mary Johnson, a Social Security and Medicare policy analyst at the Senior Citizens League. “A senior citizen might not have saved enough for their golden years if they’re not accounting for potential tax liabilities,” she warns. “You might need to save 20% or even 25% more than you initially thought.”
Prepare for These New Taxes on Your Retirement Payment
In 2024, a growing number of Social Security beneficiaries may face an increased tax burden due to an anomaly in the system. Federal income taxes on Social Security benefits are applicable if recipients earn above a relatively modest threshold, a figure that has remained unchanged since 1984 despite considerable inflation and rising benefits.
This static threshold, coupled with the annual increase in benefits through the Cost of Living Adjustment (COLA), means more seniors find themselves subject to income tax on their retirement earnings. Additionally, the prevalence of alternative income sources, such as IRAs or 401(k)s, further contributes to a scenario where a larger portion of their Social Security benefits becomes taxable. Consequently, retirees could experience a noticeable impact on their tax bills in 2024, emphasizing the need for a reevaluation of the existing tax structure to better align with current economic realities.
Here are some tips to get you prepared for this extra cash that comes with that extra taxes charge:
- Calculate your potential tax liability: The Social Security Administration website offers tools to estimate your tax deductions and taxable income.
- Review your budget: Adjusting your monthly spending plan to accommodate the increased benefits and potential tax changes is crucial.
- Seek professional advice: If navigating the complexities of Social Security and taxes feels overwhelming, consulting a financial advisor or tax professional can provide valuable guidance.
Here are the thresholds for 2024:
- Individual taxpayer: Between $25,000 to $34,000, you may have income tax on up to 50% of your benefits. Over $34,000, and up to 85% of your benefits may be taxable.
- Joint filers: Between $32,000 to $44,000, you may pay taxes of up to 50% of your benefits. Above $44,000, and up to 85% of your benefits may be taxable.