If you have yet to assess your potential tax liability for the current year as a recipient of Social Security benefits, it is advisable to do so promptly.
The 8.7% cost-of-living adjustment (COLA) implemented in 2023, resulting in increased monthly benefit payments, may complicate tax filing this year due to potentially higher tax obligations.
It is important to note that individuals whose sole source of income is derived from Social Security benefits typically are not required to file a tax return.
However, this assertion can be verified to ensure compliance with tax regulations. If you have additional sources of income, such as earnings from employment, the COLA increase may have pushed you into a higher tax bracket.
Social Security and the 2023 COLA Raise
Certainly, not all recipients will experience alterations in their tax liabilities.
As previously mentioned, individuals who exclusively receive income from Social Security benefits are generally exempt from the obligation to file a tax return, thereby avoiding taxation on their benefits.
However, if you receive income from additional sources alongside your benefits, you may potentially face a higher tax rate depending on your total earnings.
This discrepancy arises because, although there has been an 8.7% augmentation in benefit payments, the tax thresholds for filers remain unchanged, as noted by Mark Jaeger, Vice President of Tax Operations at TaxAct.
For the tax year 2024, the standard deduction for single filers has been raised to $14,600, representing a $750 augmentation.
Similarly, for married individuals filing jointly, the standard deduction has been increased to $29,200, marking a $1,500 rise.
Read more: 5 Money Habits That Are More Hype Than Help
Understanding Social Security Taxation Thresholds
To ascertain your potential tax liability, begin by examining your combined income, which encompasses your adjusted gross income, nontaxable interest, and fifty percent of your new Social Security benefit amount from 2023. Here’s a breakdown of the thresholds:
- For single tax filers with combined incomes ranging between $25,000 and $34,000, there may be an obligation to pay income tax on up to 50% of their benefits.
- Single tax filers with combined incomes surpassing $34,000 might be subject to income tax on up to 85% of their benefits.
- Joint filers with combined incomes between $32,000 and $44,000 could potentially owe income tax on up to 50% of their benefits.
- Joint filers with combined incomes exceeding $44,000 may be liable to pay income tax on up to 85% of their benefits.
- If you are married filing separately and did not reside with your spouse in the previous year, your Social Security benefits are taxed as if you were a single filer.
Read more: Iowa SNAP Recipients: Final Days To Access February Benefits
