There is a reason, and inflation is only a part of it, if you feel like your Social Security benefits aren’t going very far despite significant cost-of-living increases in recent years.
The federal tax brackets, the maximum contributions to retirement accounts, the amount of the standard tax deduction, and the cost-of-living adjustment, or COLA, for Social Security, are just a few of the things that the government routinely updates for inflation.
Calculating Taxable Social Security Benefits
However, the federal income threshold used to determine whether you must pay taxes on your Social Security payout has never been increased for inflation.
As a result, an increasing number of seniors are no longer meeting those modest standards and must pay taxes on their benefits.
Up to 85% of your Social Security benefits may be taxed, depending on your so-called provisional income.
Your gross income, any tax-free interest you received, such as from a municipal bond, and 50% of your Social Security benefits are all included in your provisional income.
None of your Social Security benefits are subject to federal taxation if your combined income is less than $25,000 for single filers and $32,000 for joint filers.
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Income Limits And Rates Explained
Your Social Security may be taxed up to 50% if your income is between $25,000 and $34,000 for single filers and $32,000 and $44,000 for joint filers.
And anything beyond $34,000 for single filers and $44,000 for joint filers is subject to tax at a rate of up to 85%. In 1993, these thresholds were added.
For instance, if your monthly Social Security payment is $1,500 and your yearly benefit is $18,000, you’ll pay taxes on $15,300, or 85%, of that amount.
You have two options: submit quarterly estimated tax returns to the IRS, or ask Social Security to deduct federal taxes from your benefit check.
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