Social Security's 2024 COLA, While Modest, Could Still Trigger Higher Taxes

A Difficult Policy Fix

The Senior Citizens League advocates for adjusting these income thresholds to today’s dollars and continuing to do so annually — as is done for the rest of the tax code.

As Johnson noted, the current thresholds for individuals mean that those with incomes between $25,000 and $34,000 may have to pay income tax on up to 50% of their benefits, while those earning above the $34,000 amount will see taxes assessed on 85% of benefits.

According to Johnson, if the individual income thresholds were adjusted for inflation from 1984 to today’s dollars, then the individual filing status threshold of $25,000 would be about $75,000. The higher $34,000 threshold amount would be about $101,000.

For couples, taxes kick in when income is between $32,000 and $44,000, at which level the couple may have to pay income tax on up to 50% of benefits. Above the $44,000 level, up to 85% of benefits may be taxable.

If the joint filing status were adjusted for inflation from 1984 to today’s dollars, Johnson said, that $32,000 figure would be about $95,500, and the $44,000 threshold would be about $131,300.

Obviously, changing the taxation of Social Security benefits is a complex task because the revenues from this tax form an important source of funding for the Social Security and Medicare trust funds.

Revenues from the 50% level of taxation go to the Social Security Trust fund, which is estimated to receive $840 billion in revenues from the tax on benefits from 2023 through 2032,” according to the league’s analysis. Revenues from the 85% level go to the Medicare Trust Fund, and between 2023 and 2032, the Medicare Hospital Insurance Trust Fund will receive about $599 billion from the taxation of Social Security benefits.

“To lift the income thresholds that subject Social Security benefits to taxation without worsening program solvency, responsible legislation would need to replace these revenues from other sources of revenues,” Johnson warned.

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