2024 Social Security Updates
It's that time of year again. We are at that exciting moment when we find out a few important bits of news regarding Social Security. Lets dive in.
The Social Security Wage base
What is it?
Social Security tax is only charged up to a certain amount of earned income per person. This limit is called the Social Security wage base. The number adjusts with various inflation figures annually. The key here is if you make more than that wage base, you will notice a larger paycheck after hitting that base figure.
In 2023 the wage base limit was $160,200. The tax on that wage base is 6.2% for social security (12.4% if self employed).
The 2024 number is going to increase to $168,200.
Medicare Hospital Insurance Tax
What is it?
All wage earners will pay medicare tax which is used to fund the Medicare health care system. The tax funds are generally used towards the cost of Medicare Part A, which covers hospital insurance for seniors and those with disabilitis. Hospital insurance in this regard includes some of the costs related to hospital visits, hospice services, and skilled nursing care.
All wage earners pay 1.45% of their earnings toward medicare tax (2.9% for self employed individuals.)
Individuals with income of more than $200k ($250k if married) pay an additional 0.9% of wages in Medicare tax. These numbers remain unchanged for 2024.
Cost of Living Adjustments (COLA)
What is it?
Cost of Living Adjustments happen annually for those receiving Social Security. This is a slight bump in your monthly Social Security benefit to help keep up with inflation. The COLA bumps have been relatively high over the last couple years as inflation has also been high during that period. These bumps are tremendously important for retirees to be able to keep up with inflation. In doing financial planning, we always like to assume that the COLA bumps on Social Security dont actually keep up with inflation as this is what the history shows.
Can you earn income while receiving Social Security Benefits?
Below full retirement age
If you are receiving current Social Security benefits and are below your scheduled full retirement age for Social Security, then tracking and planning for your other earned income is important. If you earn too much your Social Security will be reduced.
For 2024 Social Security recipients who are below full retirement age can earn up to $22,320 before their Social Security benefits begin being reduced. The benefits will be reduced by $1 for every $2 in earnings in excess of $22,320. This base is an increase from the 2023 figure of $21,240.
Full retirement age
In the year where you reach full retirement age, you can earn up to $59,520 in the year you reach full retirement age before benefits are reduced. The reduction in this case is $1 for every $3 of earnings over the limit.
Above full retirement age
Once you are above full retirement age, there is no reduction of your Social Security benefits based on earned income.
A note on tax on Social Security benefts.
Separate from benefit reductions based on earned income, Social Security benefits can be taxed.
If filing as an Individual
You start paying tax on Social Security benefits when your other combined income exceeds $25,000. The tax ramps up until you hit $34,000 a which point 85% of your Social Security benefit will be counted as taxable income.
If filing a joint return.
You start paying tax on Social Security benefits when your other combined income exceeds $32,000. The tax ramps up until you hit $44,000 in other combined income, at which point 85% of your Social Security benefit will be counted as taxable income.
There are a lot of different factors to consider here depending on where you are on your financial journey. As always, talk to your financial professionals for more detail on how these changes may affect you today but also in the future.