Social Security beneficiaries will see a 3.2% COLA adjustment in 2024, compared with the past 2022 and 2023 COLA adjustments of 8.7% and 3.2%, respectively. With inflation starting to level out, next year’s COLA adjustment will be on par with the COLA adjustment in 2023. While some will benefit, other Social Security recipients may be pushed into a high tax bracket starting next year.
2024 Social Security COLA Adjustment
Reverse Mortgage Daily explained that increased payments will start in January 2024 for approximately 66 million Social Security beneficiaries and 7.5 million people who receive Supplemental Security Income (SSI). Some SSI program beneficiaries also receive Social Security benefits. The COLA adjustment that’s built into the Social Security system has attempted to keep seniors out of poverty since the program’s inception. This latest 3.2% COLA adjustment is well above the 2.6% average annual COLA over the last 20 years.
While a COLA of this level will be welcome for program beneficiaries, the overall increase falls short of matching inflation seen in the U.S. economy in 2023. This is confirmed by the latest data from the U.S. Bureau of Labor Statistics which indicates that the consumer price index for all urban consumers (CPI-U) rose 3.7% year-over-year through this past September.
At the same time, what will be a collective 15.1% overall Social Security benefit increase from 2022-2024 will force some senior citizens to pay Federal income taxes for the first time.
Why Some Senior Citizens Will See Higher Taxes
ThinkAdvisor spoke with Mary Johnson, The Senior Citizen League’s Social Security and Medicare policy analyst.
Johnson highlighted in a call with ThinkAdvisor that there is also widespread concern about what the relatively modest 2024 COLA could mean for the taxes seniors pay on their federal government benefits. “Because Social Security recipients received an even higher COLA of 8.7% in 2023, we expect more beneficiaries to become liable for federal income taxes on their Social Security benefits for the first time in the upcoming 2024 tax season,” Johnson warned.
As many as 26% of survey participants who have received Social Security for more than three years reported paying taxes on a portion of their benefits for the first time during the 2023 tax season — i.e., for tax year 2022.
This further COLA increase in 2024 could push even more seniors over key income thresholds unless income bands are adjusted. This could pose a potential financial issue for many seniors who are already on a fixed income and strapped for cash due to high inflation. As an example, 68% of older adults reported that their household expenses remain at least 10% higher than one year ago, although the overall inflation rate has lessened, per ThinkAdvisor.
Successive COLA Adjustments at Above-Average Rates Are To Blame
The fact that 2022 and 2023 saw some of the highest Social Security COLA adjustments on record, coupled with another 3.2% increase in 2024, will largely be to blame for the upcoming tax burden.
Unless Congress acts, senior citizens can increasingly expect higher tax bills in the years to come.
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