In 2023, Social Security benefits were raised by 8.7% in order to compensate for the increase in cost of living, with the average retired worker receiving $1,827 per month instead of $1,681 in 2022.
With benefits increased seniors who have not paid taxes on their Social Security benefits might now be required to pay their taxes as higher benefits might push them into the taxable category.
As The Epoch Times reported, beneficiaries needed to pay taxes on their Social Security income if the combined income - the total of half (50%) of Social Security benefits and all other income, including tax-exempt interest - exceeded certain thresholds.
If the combined income of an individual taxpayer was between $25,000 and $34,000, up to 50% of the Social Security benefits might be taxable. However, if the income is greater than $34,000, up to 85% could be taxed.
When it comes to married couples who are filing jointly, up to 50% of Social Security income would be taxable if the combined income is between $32,000 and $44,000, and would increase by up to 85% beyond $44,000.
What could be taxable?
For example, an individual collecting a monthly Social Security income of $2,000 would receive $24,000 in annual benefits, out of which half of which ($12,000) would be used for calculating combined income. If the person makes an extra $10,000 annual income, the combined income would be $22,000, which meant that it would not be taxed as it was below the individual taxpayer threshold.
However, if the individual's extra annual income came to $20,000, the combined income would be $32,000, which meant that half of his Social Security income could be subject to taxes. If the person's extra annual income reaches $30,000 - which means the combined income would become $42,000 - up to 85% of Social Security benefits might be taxed.
"If you're married and file a joint return, you and your spouse must combine your incomes and Social Security benefits when figuring the taxable portion of your benefits," the Internal Revenue Service stated. "Even if your spouse didn't receive any benefits, you must add your spouse's income to yours when figuring on a joint return if any of your benefits are taxable."
In addition to the federal income tax, retirees might also have to pay state taxes on their Social Security, with 12 states levying such this year. The states that tax Social Security benefits are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
Low Thresholds Burden Low-Income Seniors
The low combined income thresholds have faced criticism as many retirees could end up paying large sums of their benefits as taxes.
The Social Security Administration (SSA) said that around 40% of beneficiaries would have to pay income taxes on their Social Security receipts.
The Senior Citizens League Social Security and Medicare policy analyst Mary Johnson told Yahoo Finance that they expected "more beneficiaries to become liable for federal income taxes on their Social Security benefits for the first time in the upcoming 2024 tax season."'
A survey conducted by the group found that as many as 26% of the respondents who received Social Security for over three years reported paying taxes on a portion of these benefits for the first ever time during the 2022 tax year.
In October the Senior Citizens League pointed out that the income thresholds of Social Security subject to taxation have never been adjusted for inflation, which meant that many retirees could move closer to the thresholds triggering the tax on their Social Security benefits and increase the portion of benefits that might be taxable.
Related Article: $4,873 Social Security Payments 2024: When Will Benefits Arrive for Over 71 Million Recipients?
