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Top Social Security earners will receive nearly $5,000 a month in 2024. Here’s how they got there.

Social Security recipients could face big changes in 2024, thanks to inflation and tax adjustments that will impact everything from monthly benefits to the amount recipients owe in taxes. On the one hand, the highest benefit in 2024 will approach $5,000 per month.

The Old Age and Disability Program provides monthly benefits to more than 70 million people, ranging from children to retirees. These benefits are credited with keeping millions of Americans from falling into poverty, thanks to monthly checks that are adjusted each year to keep up with inflation. In 2024, the benefits will be increase of 3.2%.

Many changes in 2024 are linked to cost of living adjustments which will not only increase recipients’ monthly income, but potentially subject more of their income to tax, experts say. This may surprise some Social Security recipients who mistakenly believe their checks are tax-free.

“There is a widely misperception, and social media doesn’t help it at all, that Social Security recipients don’t pay taxes, and that’s not the case at all,” Mary said Johnson, Social Security and Medicare policy analyst at Senior Citizens. League.

Understanding your tax liability for Social Security payments is important because otherwise a senior might not have saved enough for their golden years, Johnson added. “You may need to save 20% more than you thought you needed, or 25% more,” she said.

Here are some of the changes to expect in 2024.

The main Social Security benefit will reach almost $5,000 a month

The Social Security Administration announced its Annual COLA in October, setting the change for 2024 to the most recent inflation data. Seniors and other providers will see a 3.2% increase, a much smaller increase than the 2023 and 2022 increases of 8.7% and 5.9%, respectively.

The average benefit will increase to $1,907 per month in 2024, up from $1,848 this year.

But retirees who receive the maximum amount of Social Security will see much higher incomes, with their monthly checks climbing to $4,873 in 2024, according to the agency. That’s $318 more per month in each paycheck compared to the current year.

So who gets the biggest win? Not many, Johnson noted.

“The only way to do that is to be (Apple CEO) Tim Cook and pay the maximum” in payroll taxes, she joked. “It’s like the 1% to 2%.”

The Social Security Administration says the highest benefits are received by people who earned the maximum taxable income since age 22 and then waited to claim their benefits until age 70. Workers pay Social Security taxes up to a maximum income level, which was $160,200. in 2023. Income above this threshold is not taxed on social security.

And while people can claim their Social Security benefits as early as age 62, they can increase their monthly checks if they delay applying, with the maximum payment going to those who wait until they’re 70 to apply.

Higher benefits? You may owe more taxes

More Social Security recipients could see their tax bill higher in 2024 because of a quirk in the Social Security system.

Recipients must pay federal taxes on their benefits if they earn more than a relatively modest threshold. This threshold has not changed since 1984, although inflation and benefits have increased significantly since then.

More and more seniors are subject to taxes on their retirement income each year because their benefits typically increase each year with the COLA. And many have income from sources other than Social Security, such as IRAs or 401(k)s, which may result in more of their Social Security benefits being taxed.

Here are the thresholds:

  • Individual taxpayer: Between $25,000 and $34,000, you could 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 and $44,000, you can pay taxes on up to 50% of your benefits. Above $44,000 and up to 85% of your benefits may be taxable.

Fewer than 10 percent of Social Security recipients paid taxes on their benefits in 1984, but that figure is now about 40 percent, according to the Social Security Administration.

“We’re dealing here with the tax side of inflation, and inflation can raise your taxes” because the threshold hasn’t changed in almost 40 years, Johnson noted.

Workers could also pay more taxes

Some workers could also face higher Social Security taxes in 2024. That’s because the IRS adjusts the maximum Social Security earnings threshold 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 earnings, and their employer contributes an additional 6.2% to the program.

But that threshold will rise to $168,600 in 2024, meaning high earners will likely face higher Social Security taxes next year.

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