Social Security has clearly been around for a long time. So, you might assume that the program’s rules have long been set in stone.
But actually, Social Security tends to undergo yearly changes based on factors like inflation and wage growth. And some of those changes have the potential to impact seniors in a very meaningful way.
Next year, for example, Social Security recipients will see their monthly benefits rise by 3.2%. And while that’s not as notable an increase as in 2023, it’s a pretty generous boost by Social Security standards.
Furthermore, in 2024, seniors who earn money from a job and collect Social Security before having reached full retirement age will be able to earn a higher income without it impacting their benefits. Many retirees opt to work in some capacity to stay occupied and make it easier to cover their expenses. This change gives people in that boat more leeway.
But there’s another big Social Security change arriving in 2024 that’s going to impact workers who earn a higher wage. And if you fall into that category, it’s a change you’ll need to gear up for.
Prepare to pay more taxes
Social Security gets the bulk of its revenue from payroll taxes. And each year, there’s a wage cap put into place that dictates how much earnings are subject to Social Security taxes.
In 2023, wages of up to $160,200 were taxable for Social Security purposes. But in 2024, that cap is rising to $168,600. So, all told, higher earners are going to have to pay taxes on an additional $8,400 of wages.
Now, if you’re a salaried employee, the good news is that you won’t have to absorb that entire increase yourself. Rather, you’ll get to split it with your employer. However, if you’re self-employed, you’ll have to cover that increase entirely without any help.
An imperfect system
Many people feel that imposing a wage cap for Social Security tax purposes isn’t fair because it allows very high earners to potentially get away with paying those taxes on just a small portion of their income. Take someone who earns $2 million a year, for example. Someone in that boat is paying Social Security tax on less than one-tenth of their earnings.
Or, to put it another way, let’s say you’re earning $168,600 in 2024 while your neighbor is earning $500,000. Although their income is three times as high as yours, your Social Security tax burden will be the same.
However, you should know that while wages beyond the annual cap aren’t taxed for Social Security purposes, they also aren’t counted in the course of calculating benefits. That helps even things out to some degree.
Of course, some lawmakers are pushing to raise the wage cap for Social Security taxes substantially. And others are calling to eliminate it completely. Changes like that have the potential to really result in a higher Social Security tax bill. In light of that, having to pay taxes on an additional $8,400 of income may not seem so bad, especially if you work with your accountant to absorb that hit and plan ahead.
