Social Security 2024: What You Need to Know
Social Security beneficiaries can expect a 3.2% increase in their benefits next year. However, there are important thresholds to be aware of based on the recently announced numbers for 2024 by the Social Security Administration.
If you are a worker who hopes to be eligible for retirement benefits or if you are currently working while receiving retirement benefits, here are the key points you need to know.
1. Up to $168,600 in earnings will be taxed for Social Security in 2024
In 2024, the maximum taxable earnings for Social Security will increase to $168,600 from $160,200 in 2023.
Workers pay a 7.65% tax from their paychecks for Medicare and Social Security, also known as FICA. Self-employed workers pay 15.3% to cover both worker and employer contributions.
Of the 7.65% tax, 1.45% goes to Medicare and applies to all earnings. Higher earners may pay an additional 0.9%. The remaining 6.2% is for Social Security and applies only to earnings up to the taxable maximum.
About 6% of workers who pay Social Security taxes earn above the taxable maximum each year.
To qualify for Social Security benefits in retirement, you generally need at least 10 years of work or 40 credits. You can earn up to four credits per year. The amount of earnings required for a credit will be $1,730 in 2024, up from $1,640 in 2023.
2. Some Social Security beneficiaries who work will face an earnings test
If you claim Social Security between age 62 and your full retirement age, your benefits will be reduced for starting early.
If you continue working, you may be subject to the retirement earnings test if you earn over a certain threshold.
In 2024, the earnings exempt from the retirement earnings test will increase to $22,320 from $21,240 this year. For every $2 in earnings above that limit, $1 in benefits will be withheld.
The withheld benefits are applied to your monthly benefits once you reach full retirement age.
It’s important to check the threshold for the lower earner in a married household, as they may be able to continue working and collect their full Social Security benefit without penalty.
There is a different earnings test threshold for the year you turn full retirement age. In 2024, this will increase to $59,520 for the months before reaching full retirement age, compared to $56,520 this year. In that year, $1 in benefits is withheld for every $3 in earnings above the limit.
The earnings test is a crucial factor to consider when deciding whether to claim retirement benefits early.
3. Beneficiaries may be taxed on up to 85% of their benefit income
Social Security benefit income may be subject to federal taxes based on your combined income, which includes half of your benefits, adjusted gross income, and nontaxable interest.
If your combined income is between $25,000 and $34,000 for individual tax filers, or between $32,000 and $44,000 for married couples filing jointly, you may pay taxes on up to 50% of your benefits. If your individual combined income is more than $34,000 or if you’re married with more than $44,000, up to 85% of your benefits may be taxable.
Note that these thresholds do not change annually, but as benefit income increases with cost-of-living adjustments, more may become subject to taxes over time.
Research from The Senior Citizens League suggests that more beneficiaries may be liable for federal income taxes on their benefit income due to the 8.7% cost-of-living adjustment for 2023. The organization advocates for updated and annually adjusted tax thresholds to reduce senior citizens’ tax burden.