Next year will witness significant shifts in Social Security, encompassing increased monthly payments and heightened Social Security taxes for individuals in the upper income bracket. Anticipate notable alterations in Social Security for the year 2024, driven by automatic annual adjustments inherent in the program. Social Security beneficiaries will experience a boost in their income, primarily due to a cost-of-living adjustment (COLA).
The adjustment, triggered by an uptick in the Consumer Price Index, results in a 3.2% increase in monthly payments for 2024. However, the full benefits increase may not be realized by most retirees. The majority of seniors, who have Medicare Part B premiums deducted from their Social Security checks, will contend with a $9.80 premium hike.
Adjusting to the new 2024 Social Security landscape benefit increases and tax threshold changes
Monthly costs are set to rise from $164.90 in 2023 to $174.70 in 2024, thereby mitigating the additional funds seniors would otherwise receive through the COLA. There is a noteworthy increase in the maximum monthly Social Security benefit, reflecting a surge in the highest payout that the Social Security system will provide.
For those recently entering retirement, the maximum benefit is rising from $4,555 per month in 2023 to $4,873 per month in 2024. This ceiling on benefits stems from calculations based on average wages, applicable only to individuals subject to Social Security taxes. It’s important to note that not all income is subject to these taxes, as high earners do not contribute Social Security taxes on income exceeding a specific threshold, and this surplus income is not factored into the benefits calculation formula.
Achieving the maximum monthly benefit requires a 35-year career history with earnings at the maximum taxable income level, and individuals must delay claiming their benefits until reaching the age of 70. Those meeting these criteria will experience an elevated maximum benefit in the year 2024.
Certain individuals will see an increase in their Social Security tax contributions. As previously noted, only earnings up to a designated threshold are subject to taxation and considered in the computation of benefit amounts.
Specifically, Social Security taxes are levied on all earnings up to a set limit known as the “wage base limit.” Any income exceeding this limit is exempt from Social Security taxes and is not included in benefit calculations. This limit on taxable earnings is in place to prevent individuals with substantial incomes from receiving disproportionately large Social Security payments.
In 2024, the wage base limit is set to rise, as is customary each year. Workers will contribute Social Security tax on earnings up to $168,600, up from $160,200 in the previous year. Consequently, high earners may find themselves liable for Social Security taxes on an additional $8,400 in income compared to the threshold in 2023.
Individuals can earn more income without impacting their Social Security benefits before reaching full retirement age (FRA) in the upcoming year.
For retirees who engage in work activities before attaining full retirement age, there’s a slight increase in the permissible earnings limit before experiencing reductions in their Social Security payments.
Currently, retirees who work while claiming Social Security prior to full retirement age face a temporary reduction of $1 in benefits for every $2 earned above $21,240 in 2023 if they don’t achieve full retirement age during that year. If they reach full retirement age at some point in the year, the reduction is $1 in benefits for every $3 earned above $56,520. In 2024, these thresholds will be raised to $22,320 and $59,520, respectively.
Being aware of these adjustments is crucial for both current and prospective retirees, enabling them to better comprehend what changes to anticipate in their Social Security benefits next year.