The Social Security payment increase in 2023 may lead to a higher tax burden for retired Americans, who are already struggling with inflation.
Although Social Security recipients receive a cost-of-living adjustment indexed to inflation, the tax-exempted amount has remained unchanged for decades. As a result, retirees have owed taxes on their benefits if their adjusted gross income – including up to 85% of their Social Security payments – is more than $25,000 if they are single or $32,000 if they are a married couple.
Due to last year’s 8.7% COLA increase, which was the largest since 1981, the average monthly Social Security benefit increased by about $140. Experts predict that the ongoing inflation crisis could push more seniors into higher tax brackets. Shannon Benton, executive director of the Senior Citizens League, told FOX Business, “If [retirees] have been fortunate enough to put even a little bit aside, it’s almost guaranteed. We really expect a huge bump in the number of people who will be paying taxes on their Social Security benefits this year, sadly.”
According to the Social Security Administration, more than 66 million Americans who receive Social Security payments received the bigger payments last year. As a result, the impending tax increases could be significant for many retirees. The Senior Citizens League estimates that nearly half of Social Security recipients who pay taxes on their benefits may see their tax bills rise by up to 25% this year.
The issue of taxing Social Security payments has been a contentious one for decades. The Senior Citizens League has been advocating for raising the threshold at which beneficiaries pay taxes on their benefits, arguing that the current level of $25,000 for individuals and $32,000 for married couples is outdated.
One proposed solution to the tax issue is to raise the threshold at which retirees are taxed on their benefits. Some lawmakers have proposed raising the threshold to $50,000 for individuals and $100,000 for married couples, which would provide relief for many seniors. However, others argue that such a move would cost the government hundreds of billions of dollars in lost revenue over the next decade and exacerbate the existing budget deficit.
The potential tax increase on Social Security benefits highlights the need for comprehensive retirement planning that takes into account inflation and taxes. Financial advisors recommend that retirees work with their tax advisors to minimize their tax liability and maximize their retirement income. With retirement savings at stake, it’s essential that retirees carefully consider their options and plan accordingly to ensure a financially secure retirement.