The 8.7% increase in cost of living adjustments from 2023 could result in increased taxes for Social Security recipients this year. In 2023, Social Security beneficiaries saw a historic 8.7% increase in cost of living adjustments on their monthly payments. With these elevated payments, navigating tax filings this year may pose some challenges, potentially resulting in higher tax obligations.
Bear in mind that if your sole income stems from Social Security benefits, you probably won’t need to file a tax return, but this statement can provide clarity. However, if you receive additional income, such as from employment, the Social Security COLA increase might have pushed you into a higher tax bracket. We’ll delve into the details.
Tax Implications of the 2023 COLA Increase for Social Security Recipients
Continue reading to determine how the 2023 COLA increase might impact your taxes. For further insights into Social Security, discover why holding onto the COLA letter you received last year is important. Additionally, here’s the Social Security payment schedule and guidance on filing your tax return at no cost.
Certainly, while not all recipients will experience a tax change, those solely reliant on Social Security benefits typically aren’t obligated to file a tax return, thus avoiding taxes on their benefits.
However, if you receive income from other sources alongside your benefits, you might face potentially higher taxation, contingent upon your total income. Mark Jaeger, vice president of tax operations at TaxAct, highlighted that despite the 8.7% increase in benefits last year, the tax thresholds for filers remain unchanged. Consequently, more individuals could find themselves subject to higher tax liabilities.
There’s a silver lining though. Jaeger noted that the IRS adjusted tax brackets for inflation, resulting in approximately a 7% annual increase in the standard deduction. This adjustment may help alleviate some of the tax burdens for Social Security beneficiaries.
For the 2024 tax year, the standard deduction for single filers has been raised to $14,600, marking a $750 uptick. Married individuals filing jointly now have a standard deduction of $29,200, a $1,500 increase.
Wondering about your potential tax liability?
Start by examining your combined income, which encompasses your adjusted gross income, nontaxable interest, and half of your new Social Security benefit amount from 2023. Here’s the breakdown:
- For single tax filers with a combined income ranging from $25,000 to $34,000, you may owe income tax on up to 50% of your benefits.
- Single tax filers with a combined income exceeding $34,000 might be subject to income tax on up to 85% of their benefits.
- If you’re filing jointly and your combined income falls between $32,000 and $44,000, you may need to pay income tax on up to 50% of your benefits.
- Joint filers with a combined income surpassing $44,000 could face income tax on up to 85% of their benefits.
- Married individuals filing separately, who didn’t reside with their spouse the previous year, have their Social Security benefits taxed as if they were single filers.
What happens if you’re also receiving other government benefits?
If you receive additional government benefits such as Supplemental Security Income or qualify for the earned income tax credit, Mark Jaeger noted that the same guidelines apply to you if you meet the criteria outlined above.
For example, if you’re employed and your combined income amounts to $32,000, you would be taxed on up to 50% of your benefits. If your income increases to $38,000, you would then be taxed on up to 85% of your benefits.
That’s how the federal government and its different pertinent agencies operate in order to determine whether citizens and legal residents have to pay taxes or not.
IRS Issued $13 Billion in Tax Refunds in the Second Filing Week
The 2024 tax season is well underway, having started on January 29, and taxpayers are already receiving their refunds from the IRS. As of February 9, the IRS reported processing 25.4 million federal income tax returns, representing a 4.4% decrease compared to the 26.6 million processed at the same point last year.
Notably, tax season started earlier in 2023 (on January 23, 2023) compared to January 29, 2024, providing tax filers with an additional six days last year to submit their tax returns.
Out of the 25.5 million returns received thus far, 24.9 million were filed electronically, with 9.4 million from tax preparers and an additional 15.5 million from self-preparers, according to the IRS.
Typically, taxpayers filing electronically and opting for direct deposit can anticipate receiving their refunds within 21 days, the IRS noted. However, as of February 9, almost two weeks into the tax filing season, the IRS had already issued more than 7.4 million refunds.
In comparison, by February 10, 2023, the IRS had disbursed over 13.3 million refunds. It’s worth noting that tax season started six days earlier last year, on January 23, 2023, giving the IRS nearly a week longer to process tax returns and issue refunds.