Well, now it is official. For months, financial experts have been saying that seniors who get Social Security could get a huge raise in 2022. And now this week, the SSA announced that they would be getting a 5.9% cost-of-living increase (COLA), the largest to happen in decades.
In comparison, seniors only got a 1.3% COLA last year. And so a 5.9% increase is actually a lot more buying power.
But while a good Social Security raise is a great thing in theory, there is one situation where it might actually backfire. And seniors should gear up for this possibility.
Will a giant raise end with more taxes?
Seniors are usually shocked to discover that Social Security is taxed. But whether taxes are applied to your benefits in linked to how much you get.
Taxes on Social Security depend on provisional income, which is the amount of your non-Social Security income in addition to 50% of your yearly benefit. For people who are now single, a provisional income less than $25,000 means your Social Security will not be taxed.
But singles with an income range from $25,000 up to $34,000 risk being taxed on up to 50% of their Social Security benefits. And people with a provisional income higher than $34,000 risk taxes on as much as 85% of their Social Security benefits.
These levels are slightly higher for couples who get Social Security. In this case, couples with a provisional income less that $32,000 get to keep all of their benefits.
But having a provisional income between $32,000 and $44,000 means as much as 50% of benefits might be taxed. And over the $44,000, up to 85% of your benefits can be subject to taxes.
Here is where next year’s increase comes into play. Seniors who now are currently about to be taxed on Social Security might see their benefits increase to the place where their provisional income is beyond this above limits. The end result? Getting hit with taxes on your Social Security benefits for the first time.
Author: Scott Dowdy