The federal tax brackets, retirement account contribution caps, the size of the standard deduction for taxes, and Social Security cost-of-living adjustment, or COLA, are just a few of the things that the government routinely adjusts for inflation.
Yet, the federal income threshold used to determine whether you must pay taxes on your Social Security payout has never been increased for inflation.
Seniors Face Increasing Taxation on Social Security Benefits
Thus, a growing number of seniors have been crossing those low criteria and being required to pay taxes on their benefits as time goes on.
People’s jaws would drop when they learned how Social Security is taxed, even though everyone is aware that it is, according to Jordan Gilberti, senior lead planner and certified financial planner at financial advisory firm Facet.
Up to 85% of your SSA 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 SS benefits are all included in your provisional income.
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Outdated Taxation
None of your benefits are subject to federal taxation if your combined income is less than $25,000 for single filers and $32,000 for joint filers.
Your benefits 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.
Since the introduction of taxes on Social Security benefits in 1984, these criteria have not changed.
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 can either ask Social Security to deduct federal taxes from your benefit check or submit quarterly estimated tax returns to the IRS.
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