Social Security's high earners will get almost $5,000 a month in 2024. Here's how they got there.
Social Security recipients could face some big changes in 2024, thanks to inflation and tax-related adjustments that will impact everything from monthly benefits to how much recipients owe in taxes. For one, the top benefit in 2024 will approach $5,000 per month.
The old-age and disability program provides monthly payments to more than 70 million people, ranging from children to retirees. Those benefits are credited with keeping millions of Americans from slipping into poverty, with monthly checks adjusted each year to keep up with inflation. In 2024, benefits will increase by 3.2%.
Many of the changes in 2024 are related to cost-of-living adjustments which will not only boost recipients' monthly income, but potentially subject more of their earnings to taxes, experts say. That can be a surprise to some Social Security beneficiaries who mistakenly believe their checks are tax-free.
"There is a wide misperception, and it's not helped by social media at all, that Social Security recipients don't pay taxes, and that's not at all the case," said Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.
Understanding your tax liability for Social Security payments is important because otherwise a senior citizen might not have saved enough for their golden years, Johnson added. "You might have to save 20% more than you thought you might need, or 25% more," she said.
Here are some of the changes to expect in 2024.
Top Social Security benefit will hit almost $5,000 per month
The Social Security Administration announced its annual COLA in October, pegging the 2024 change on the most recent inflation data. Seniors and other recipients will get an increase of 3.2%, a much smaller boost than the 2023 and 2022 increases of 8.7% and 5.9%, respectively.
The average benefit will rise to $1,907 per month in 2024 from $1,848 this year.
But retirees who receive the maximum Social Security payout will see much higher earnings, with their monthly checks jumping to $4,873 in 2024, according to the agency. That's about an additional $170 per month in each paycheck compared with the current year.
So who gets the top payout? Not many people, noted Johnson.
"The only way to get it is if you're [Apple CEO] Tim Cook and you have been paying the maximum" into your payroll taxes, she joked. "It's like the 1% to 2%."
The Social Security Administration says that the top benefit is received by people who have earned the maximum taxable earnings since age 22, and then waited to claim their benefits at age 70. Workers pay Social Security tax up to a maximum income level, which was $160,200 in 2023. Earnings above that threshold aren't taxed for Social Security.
And while people can claim their Social Security benefits as early as 62 years old, they can increase their monthly checks if they delay claiming, with the maximum payout going to those who wait until they turn 70 years old to claim. For instance, top earners who claim at 62 years old would get $2,710 per month in 2024.
Higher benefits? You may owe more in taxes
More Social Security beneficiaries could see a higher tax bill in 2024 because of a quirk in the Social Security system.
Beneficiaries must pay federal income taxes on their benefits if they earn above a relatively modest threshold. This threshold hasn't changed since 1984, even though inflation and benefits have risen considerably since then.
More seniors are subject to income tax on their retirement income each year because their benefits generally rise each year with the COLA. And many have incomes from sources other than Social Security, such as IRAs or 401(k)s, which can cause more of their Social Security benefit to face taxes.
Here are the thresholds:
- Individual taxpayer: Between $25,000 to $34,000, you may have income tax on up to 50% of your benefits. Over $34,000, and up to 85% of your benefits may be taxable.
- Joint filers: Between $32,000 to $44,000, you may pay taxes of up to 50% of your benefits. Above $44,000, and up to 85% of your benefits may be taxable.
Fewer than 10% of Social Security recipients paid taxes on their benefits in 1984, but that's risen to about 40% currently, according to the Social Security Administration.
"We are dealing with the tax side of inflation here, and inflation can drive up your taxes" because the threshold hasn't changed in almost 40 years, Johnson noted.
Workers may pay more in taxes too
Some workers may also face higher taxes for Social Security in 2024. That's because the IRS adjusts the maximum earnings threshold for Social Security each year to keep up with inflation.
In 2023, workers paid Social Security taxes on income up to $160,200. For an individual, the tax rate is 6.2% of earnings, with their employer paying another 6.2% into the program.
But that threshold will rise to $168,600 in 2024, which means higher earners are likely to face higher Social Security taxes next year.
Correction: An earlier version of this story on December 27, 2023, misstated that the additional monthly increase was $318.