Should Social Security Taxes Be Adjusted for Inflation Too? Why COLAs Are Hurting Seniors at Tax Time
In January, one of the biggest cost of living adjustments to Social Security in the program’s history went into effect. With the 8.7% increase, monthly checks sent out to beneficiaries are, on average, about $146 more than they were in 2022.
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Though the extra money was sorely needed to help seniors help pay for necessities during record-high inflation, many have said it’s not enough. Adding to that now, during critical tax time, is the fact that COLAs have historically never been applied to adjusting the threshold which determines if Social Security beneficiaries will need to pay taxes.
What’s making things worse now is the fact that, on top of not having enough money, many more Social Security beneficiaries are now having to part with more of their checks to pay for taxes.
With more money from the COLAs and as more seniors look for part-time work to make ends meet (the AARP said adults age 65 and older are twice as likely to be working today compared with 1985), more are tipping over into the threshold requirement for paying the feds. That’s because up to 85% of Social Security can be taxed depending upon how much a beneficiary makes in “provisionary income” through wages and other assets like mutual bonds.
For individuals with provisionary income above $25,000 and joint filers above $32,000, up to 50% of their Social Security is taxed. For individuals with provisionary income above $34,000 and joint filers above $44,000, up to 85% of Social Security is taxed. As USA Today pointed out, these guidelines have been the same since 1984 and 1993, respectively, and have been a gross inequity that’s hurting many seniors.
While the government often makes adjustments to federal tax brackets, retirement account contribution limits, standard deductions and Social Security COLAs to account for inflation, USA Today noted, “One thing that has never been adjusted for inflation is the federal income threshold to determine if you’ll have to pay taxes on your Social Security benefit.”
The problem, according to the publication, is that income thresholds haven’t been bumped up, so now more and more Social Security payees have to pay taxes every year. “In 1984, the average monthly check for an individual was $314 and $472 for joint filers. In 2023, it’s $914 and $1,371, respectively,” according to USA Today. It was also noted that if the income thresholds were adjusted for inflation like COLAs are, then those figures today would be about $73,000 for individual filers and $93,200 for married couples filing jointly.
The Senior Citizens League advocacy group has called the situation “discriminatory, double taxation” and a recent survey they conducted found that 58% of seniors believe the thresholds should be adjusted while many believe getting rid of the tax altogether would be the way to go.
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The issue, of course, is the fact that Social Security is quickly running out of money to fund the program (it will be extinguished by 2034 if nothing is done) and it relies on revenue from taxes to help replenish reserves. It’s estimated that Social Security receives $48.8 billion in revenue from taxing benefits, according to USA Today. And with the topic of Social Security overhaul being a hot button item on the Congressional floor, it’s likely moving thresholds won’t be one of the measures debated any time soon.
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This article originally appeared on GOBankingRates.com: Should Social Security Taxes Be Adjusted for Inflation Too? Why COLAs Are Hurting Seniors at Tax Time
