Now is a good time to review your potential tax liability for the year if you receive Social Security benefits. The 8.7% cost of living adjustment in 2023 that increased your monthly checks could potentially complicate your tax filing this year, as it may result in higher taxes owed.
It’s important to note that if your sole source of income is from your Social Security benefits, filing a tax return may not be necessary. However, this statement can provide you with the information you need to determine your filing requirements. If you have additional sources of income, such as from employment, the COLA increase may have pushed you into a higher tax bracket. Allow us to clarify.
Continue reading to learn about the potential impact of the 2023 COLA increase on your taxes. Here’s a compelling reason to hold on to that COLA letter you received last year – it contains important information about Social Security. Presenting the Social Security payment schedule and providing guidance on filing your tax return without any cost. Additionally, take a look at CNET’s top tax software for 2024.
Read also: February 14th Social Security Payments: Who Qualifies for $1,900?
Can Social Security beneficiaries be affected by the 2023 COLA increase?
Yes, however, it is unlikely that all recipients will be affected by any tax adjustments. As stated previously, individuals who solely receive income from Social Security benefits are generally not obligated to file a tax return and are therefore exempt from paying taxes on their benefits.
If you have additional sources of income apart from your benefits, there is a possibility that you may be subject to a higher tax rate, depending on the amount of money you earn. According to Mark Jaeger, vice president of tax operations at TaxAct, the tax threshold for tax filers has not changed, despite the 8.7% increase in benefits you received. The rise in numbers could result in a larger tax burden for many people.
There’s an advantage. The IRS adjusted the tax brackets for inflation, Jaeger said, making the standard deduction about 7% higher year over year. This may help offset some of the taxes Social Security beneficiaries could have to pay.
For the 2024 tax year, the standard tax deduction for single filers has been raised to $14,600, a $750 increase. For those married and filing jointly, the standard deduction has been raised to $29,200, a $1,500 increase.
How much will you be taxed?
To determine the potential amount of taxes you may owe, begin by examining your total income. This encompasses your adjusted gross income, nontaxable interest, and half of your new Social Security benefit amount from 2023. Let me provide you with a breakdown.
- If you’re a single tax filer and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits.
- If you’re a single tax filer and your combined income is more than $34,000, you may have to pay income tax on up to 85% of your benefits.
- If you’re filing a joint return and your combined income is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits.
- If you’re filing a joint return and your combined income is more than $44,000, you may have to pay income tax on up to 85% of your benefits.
- If you’re married filing separately and didn’t live with your spouse last year, your Social Security benefits are taxed as if you were a single filer.
Read also: Breakthrough Discovery: A Promising New Method for Early Ovarian Cancer Diagnosis
What happens if I also receive other government benefits?
According to Jaeger, the same rules apply to individuals who receive other government benefits such as Supplemental Security Income or are eligible for the earned income tax credit, if they also meet the criteria mentioned above.
As an example, if you are currently employed and your total income amounts to $32,000, a portion of your benefits would be subject to taxation, specifically up to 50%. If you earn $38,000, a portion of your benefits may be subject to taxation, specifically up to 85%.
What are the tax brackets for the 2024 tax season?
Discover your position in the tax bracket below.
Here’s a guide on adjusting your W-4 Form to potentially increase your tax refund, along with some reasons why it may not be the best idea. Additionally, I have included information on the timeline for receiving your tax refund after filing your taxes, as well as a helpful cheat sheet for tax filing.
Read also: Early Warning Signs: Blood Proteins Predict Dementia 15 Years in Advance, Study Finds
