Social Security recipients could face big changes in 2024, thanks to inflation and tax-related adjustments that will affect everything from monthly benefits to the amount recipients owe in taxes. On the one hand, the maximum benefit in 2024 will be close to $5,000 per month.
The old age and disability program provides monthly payments to more than 70 million people, from children to retirees. Those benefits are credited with keeping millions of Americans from falling into poverty, with monthly checks adjusted each year to keep up with inflation. In 2024, profits will increase.
Many of the changes in 2024 are related towhich will not only increase recipients' monthly income, but potentially subject more of their income to taxes, experts say. This may come as a surprise to some Social Security recipients who mistakenly believe their checks are tax-free.
“There's a widespread misperception, and social media doesn't help at all, that Social Security beneficiaries don't pay taxes, and that's not the case at all,” said Mary Johnson, a Social Security and Medicare policy analyst at Senior Citizens. League.
Understanding your tax liability for Social Security payments is important because otherwise a senior may not have saved enough for his or her golden years, Johnson added. “You may have to save 20% more than you thought you would need, or 25% more,” he said.
These are some of the changes expected in 2024.
Maximum Social Security benefit will reach almost $5,000 per month
The Social Security Administration announced its 2023 and 2022 increases of 8.7% and 5.9%, respectively.in October, fixing the 2024 change in the most recent inflation data. Seniors and other beneficiaries will get a 3.2% increase, a much smaller boost than the
The average benefit will increase to $1,907 per month in 2024 from $1,848 this year.
But retirees receiving the maximum Social Security payment will see much higher incomes, with their monthly checks increasing to $4,873 in 2024, according to the agency. That's an extra $318 per month in each paycheck compared to the current year.
So who gets the biggest payout? There aren't many people, Johnson noted.
“The only way to get it is if you're (Apple CEO) Tim Cook and you've been paying the maximum” on your payroll taxes, he joked. “It's like 1% to 2%.”
Social security administration says that the maximum benefit is received by people who have earned the maximum taxable income since age 22 and then waited to claim their benefits at age 70. Workers pay Social Security taxes up to a maximum income level, which was $160,200 in 2023. That threshold is not subject to Social Security taxes.
And while people can claim their Social Security benefits starting at age 62, they can increase their monthly checks if they delay applying, with the maximum payment going to those who wait until they turn 70 to claim.
Greater benefits? You may owe more in taxes
More Social Security recipients could see a higher tax bill in 2024 due to a quirk in the Social Security system.
Recipients must pay federal income taxes on their benefits if they earn above a relatively modest threshold. This threshold has not changed since 1984, although inflation and profits have increased considerably since then.
Each year, more seniors are subject to income tax on their retirement income because their benefits generally increase each year with the COLA. And many have income from sources other than Social Security, such as IRAs or 401(k) accounts, which can cause more of their Social Security benefits to be taxed.
Here are the thresholds:
- Individual taxpayer: Between $25,000 and $34,000, you may have income taxes on up to 50% of your benefits. More than $34,000 and up to 85% of your benefits may be subject to taxes.
- Joint filers: Between $32,000 and $44,000, you can pay taxes on up to 50% of your benefits. More than $44,000 and up to 85% of your benefits may be subject to taxes.
Less than 10% of Social Security beneficiaries paid taxes in their benefits in 1984, but today that figure has risen to about 40%, according to the Social Security Administration.
“We're dealing with the fiscal side of inflation here, and inflation can drive up taxes” because the threshold hasn't changed in nearly 40 years, Johnson said.
Workers can also pay more taxes
Some workers could also face higher Social Security taxes in 2024. This is because the IRS adjusts the maximum income threshold for Social Security each year to keep up with inflation.
In 2023, workers paid Social Security taxes on income up to $160,200. For an individual, the tax rate is 6.2% of income, and their employer pays another 6.2% into the program.
But that threshold raise to $168,600 in 2024, meaning higher earners will likely face higher Social Security taxes next year.
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