AARP Hearing Center
The recent inflation spike had a silver lining for Social Security recipients —the largest cost-of-living adjustments (COLAs) for benefits in more than 40 years.
But come tax time, a growing number of retirees are finding that silver lining has a black cloud: Those bigger benefits push them over the income threshold at which the IRS taxes a portion of Social Security payments.
In a recent survey of Social Security recipients by the Senior Citizens League, an advocacy group, nearly a quarter of those who had been getting benefits for at least three years said they paid taxes on those benefits for the first time in 2023.
That likely reflects 2022’s 5.9 percent COLA, then the largest in about 40 years, which increased the average retiree’s Social Security income by about $1,100 for the year. An even bigger COLA in 2023 — 8.7 percent, boosting the average annual retirement benefit by about $1,750 — means more older filers can expect a tax bite on their benefits.
“We expect the higher Social Security income will not only cause more Social Security recipients to pay taxes on their benefits this tax season, but taxes are taking a bigger portion of Social Security checks in 2024,” says Mary Johnson, Social Security and Medicare policy analyst for the Senior Citizens League.
More people pay each year
With inflation cooling, benefits are getting a more modest boost this year — 3.2 percent — but the recent big COLAs cast a bright light on a dynamic that has been in play for decades.
The federal government began taxing Social Security income in 1984, one of a broad array of changes enacted the year before to shore up the program’s finances. The tax revenue goes into Social Security’s trust funds, helping to cover future benefit payments.
But while benefits have increased most years with inflation, the income levels at which they become taxable have stayed the same.
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