To the unfortunate surprise of many seniors on benefits, yes, Social Security can be taxed. However, as with most aspects of the program, it’s tricky. Social Security can be taxed — but isn’t always taxed. It is based solely on your income level. If you weren’t paying taxes before there is a change you might have to make because inflation-related COLA increased could bump you up a tax bracket, as MarketWatch’s Jessica Hall reports.
What to Know About Potential COLA Taxes
Please note that seniors are only facing potential COLA taxes. Social Security benefits are only taxed once you pass a certain income threshold.
Additionally, while inflation drives prices and COLA, it can have an effect on tax brackets, increasing the deduction for seniors.
While that can help, Social Security taxes are steep, and the benefit tax system is out of date. For single filers, the tax threshold is only $24,000. If you make more than that you can pay taxes on up to 50 percent of your benefit. For joint filers, the threshold is only $32,000. More than 50 percent of seniors nationwide will pay taxes on their benefits.
Those thresholds haven’t adjusted for inflation, despite COLA’s readiness to adjust. If they had, the threshold for a single filer would be over $70,000 and for joint filers it would be over $90,000.
There is legislation in the works that would rework the retirement tax system, known as the You Earned It, You Keep It Act. That bill has yet to pass the U.S. House of Representatives, but it’s gaining momentum.
A way to help boost retirement legislation is to help the Council for Retirement Security in its mission to protect our benefits from insolvency. By doing so we can ensure that at the very least, we make our demands to protect Social Security and retirement known to the world.
For more information, follow along with the Council for Retirement Security.
