- In 2024, higher earners may pay more Social Security taxes.
- Additionally, working while receiving retirement benefits may have consequences.
- Here’s what you should know.
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Social Security beneficiaries are expected to receive an enhancement to their benefits next year, based on a 3.2% cost-of-living adjustment.
But there are several limits workers should take into account, based on the new 2024 numbers Recently announced By the Social Security Administration.
If you’re a worker and hope to eventually qualify for retirement benefits, or you’re working and also receiving retirement benefits, here’s what you need to know.
Social Security’s maximum taxable earnings will rise to $168,600 in 2024, up from $160,200 in 2023.
Workers pay a tax of 7.65% of their paychecks for Medicare and Social Security, also known as FICA, which stands for Federal Insurance Contributions Act. Self-employed workers pay 15.3% to cover worker and employer contributions.
That 7.65% includes 1.45% that goes to Medicare, which applies to all earnings. Higher earners may pay an additional 0.9%.
The remaining 6.2% is allocated to Social Security and applies only to the taxable maximum, or $168,600 for next year.
about 6% of workers who pay Social Security taxes have earnings above the taxable maximum each year, according to the Social Security Administration.
By paying taxes into Social Security, you may eventually receive benefits in retirement.
In general, you need at least 10 years of work, or 40 credit hours, to qualify. You may earn up to four credits per year.
The amount of earnings required to get the Social Security credit will be $1,730 in 2024, up from $1,640 in 2023.
If you claim Social Security between age 62 and full retirement age, your benefits will be reduced for starting early.
If you also continue to work, you may be subject to what is known as the retirement earnings test if you earn more than a certain threshold.
In 2024, earnings exempt from the retirement earnings test will rise to $22,320, from $21,240 this year. For every $2 of earnings above this limit, $1 in interest will be withheld.
The good news is that those withheld benefits are applied to your monthly benefits once you reach full retirement age.
“It is worth checking the lower income threshold in married couples [two-earner] said Joe Elsasser, a certified financial planner and president of Covisum, a provider of Social Security claims software.
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This low-income earner may be able to continue working and receive full Social Security benefits without facing any penalty, he said.
Importantly, there is a different threshold for the earnings test for the year in which you reach full retirement age.
In 2024, that amount will rise to $59,520 for the months before you reach full retirement age, compared to $56,520 this year. In the year you reach full retirement age, $1 in benefits is withheld for every $3 in earnings above the limit.
The earnings test is an important factor to consider when deciding whether to claim retirement benefits early, according to Elsasser.
The new cap — roughly $60,000 — for the year you reach full retirement age also represents an opportunity, he said.
For example, if you reach full retirement age in July, you might earn about $10,000 a month before your birthday and won’t be subject to the earnings test if benefits start on Jan. 1, Elsasser said.
Social Security benefit income may be subject to federal taxes.
The rate at which this income is taxed depends on your combined income. This is calculated by adding half of your benefits to your adjusted gross income and non-taxable interest.
You can pay taxes on up to 50% of your benefits if your combined income is between $25,000 and $34,000 for single tax filers, or between $32,000 and $44,000 for married couples filing jointly.
Up to 85% of your benefits may be taxable if your combined individual income is more than $34,000 and you file individually, or if you are married with more than $44,000.
It is worth noting that these thresholds do not change from year to year. However, as benefit income increases each year with cost-of-living adjustments, more of it becomes taxable over time.
More beneficiaries may be liable for federal income taxes on their interest income next April because of an 8.7% cost-of-living adjustment for 2023, according to research by the Senior Citizens Association. The nonpartisan senior group is calling for tax thresholds to be updated and adjusted annually so that seniors don’t have to pay as much in taxes on their income from benefits.
“Taxes are certainly becoming a growing concern,” said Mary Johnson, a Social Security and Medicare policy analyst at the Senior Citizens League.
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