Taxes and Your Increased Benefits
One of the most persistent and frustrating surprises for new retirees is discovering that the federal government taxes Social Security benefits. What makes this taxation particularly aggressive during periods of high inflation is that the income thresholds triggering these taxes are not indexed for inflation. They have remained completely static since they were enacted decades ago.
The Internal Revenue Service uses a formula called “provisional income” (sometimes called combined income) to determine how much of your benefit faces taxation. You calculate your provisional income by taking your Adjusted Gross Income, adding any nontaxable interest (such as municipal bond interest), and then adding exactly 50 percent of your Social Security benefits.
If you file your taxes as an individual, a provisional income between $25,000 and $34,000 means up to 50 percent of your benefit may be taxable. If your provisional income exceeds $34,000, up to 85 percent of your benefit becomes taxable. For married couples filing jointly, the 50 percent threshold sits between $32,000 and $44,000, while incomes above $44,000 trigger the 85 percent taxation bracket.
Because these thresholds never change, a generous COLA acts as a double-edged sword. As your Social Security payments increase to keep pace with inflation, that extra income automatically drives up your provisional income. This phenomenon frequently pushes retirees over the $34,000 or $44,000 limits, subjecting a larger portion of their benefits to federal income tax. Managing this dynamic requires intentional tax planning.
As Ed Slott advises, proactive tax planning allows you to control your tax brackets. Many retirees execute strategic Roth conversions during years when their income dips, moving funds from tax-deferred IRAs into tax-free Roth IRAs. While you pay taxes on the converted amount today, any future withdrawals from that Roth IRA will not increase your provisional income. This strategy helps shield your future Social Security benefits from taxation, allowing you to keep more of your COLA.
I’ll get about $154 more
COLA is so broken. The cost of gas has made almost a 20% increase and cost of food has nearly 30% increase on some items. 3% is not even a scratch on the surface. Its hard enough to get SSI but to work your whole life just to struggle because the government can’t do basic math is getting really old. COLA is suppose to reflect the Cost of Living. Ao if cost of living makes a 20% increase that year the SSI and VA Disability benefits should follow suit. Quit punishing the people who the government has lied to the longest.
Yeah, we appreciate everything we get, but this still is not enough for the older people
The only good thing I have to say is I’m more and more grateful for the Blue Cross- Blue Shield insurance that, as a former VA employee, I carried over into retirement. Comparing BCBS with Medicare plan B, the latter is a ripoff.
3.8 per cent of nothing is still nothing
Right on .They don’t get social security and the right wing lies about it to keep us divided by their ignorant base that don’t know any better since they are told to stay stupid and not research or think for themselves
So we get a raise in social security but then Medicare raises its prices so SS is a very little increase. How about we make Congress paypack the monies they STOLE from Social Security and left WORTHLESS IOU’s in its place? Plus interest, it might make Social Security solvent. And then ahow about Congress has to pay into Social Security the way other people HAVE TO. How about any time they make a new rule, they have to follow it also and not be exempt! I’d be for all of that!
So we get a raise but Medicare immediately raises what they pull out. Your ‘raise’ is drastically reduced. How about we do 2 things: Make Congress pay back (with interest) the Worthless IOU’s they left when they Stole funds from Social Security. And make Congress pay into Social Security the way the people who work have to. Just a thought.
You get a bump in social security and Medicare immediately raises you costs so how much do you really realize in the SS gain? If they made Congress pay back all the WORTHLESS IOU’s they left when they stole monies from Social Security, it would put social security on solid financial ground. But they won’t pay it back yet keep raising their (Congress’) salaries ! And how about if Congress had to pay into social security instead of exempting themselves from it?
retired people continue to get screwed. the lying piece of shit government knows inflation is well above 10 percent but they continue to stick it to us.