With the political context of the United States in constant change, and in the midst of the transition from the government of Joe Biden to Donald Trump, the issue of increases to Social Security and taxes on this income is in the daily discussion, especially in the lives of those beneficiaries who depend on this income to pay their living costs.
To this day, More than 72 million Americans are preparing to see their next payments increase significantly, especially those with Social Security Disability Insurance (SSDI). The Social Security Administration (SSA) has announced a 2.5% increase in the cost of living adjustment (COLA), which will impact 68 million Social Security beneficiaries and will begin in January of next year. For the 7.3 million SSDI beneficiaries, the COLA also applies.
The COLA, changes to SSDI, and tax implications
What we have mentioned above is not the only relevant thing to read, since officials also communicated that the maximum limit of income subject to the Social Security tax will increase to $176,100, an adjustment that seeks to maintain the sustainability of the system in the face of changes in the economy.
As part of the transition to these new adjustments, the SSA reported that beneficiaries will receive a notice in December that will explain the changes to their monthly allowances. This notice will be available both online and in the message center of the “My Social Security” platform. The agency ensures that email notifications will also be sent to beneficiaries, allowing for better communication and understanding of the new amounts.
Starting next year, which actually commences in less than three weeks, beneficiaries can expect a more simplified format in the reports they receive about their benefits. These new communications will include specific details, such as the exact amounts of your monthly payments and the date you can receive your money. It is a step that seeks to make the financial lives of many Americans easier.
How much will your income increase in 2025?
According to estimates made by the SSA itself, this new 2.5% adjustment could translate into an increase of approximately $50 in the monthly checks of most beneficiaries. However, this increase is considered the lowest since 2021. In the wake of the slowdown in inflation, the cost of living adjustment has been less pronounced compared to previous years.
In 2023, beneficiaries enjoyed a significant COLA increase of 8.7%, while in 2022 the increase was 5.9%. This year, the adjustment was set at 3.2%. The numbers reflect the Social Security system’s ability to adapt to economic fluctuations, but they also pose ongoing challenges for those who rely on these payments to meet basic needs.
Taxes and Benefits: What You Should Consider if You Are an SSDI Beneficiary
I assure you that you do not want a problem with either the SSA or the IRS, and I will tell you why: While an increase in benefits is a positive thing, it can also lead to an increase in taxes for certain beneficiaries. The SSA notes that approximately 40% of those who receive Social Security benefits must pay federal taxes on those amounts. The tax liability generally applies to those who have significant additional income in addition to their monthly government checks.
Beneficiaries who file with the IRS as individuals could face taxes if their combined annual income is between $25,000 and $34,000. In this case, up to 50% of your monthly payments may be taxed. On the other hand, if your income exceeds $34,000, the tax burden could fall on approximately 85% of your monthly benefit.
For those who file a joint return with the IRS, the numbers are slightly different: Those with combined income between $32,000 and $44,000 could see taxes on up to 50% of their benefits, while those above $44,000 would be taxed on 85%. %. It’s a situation that requires attention to finances and tax planning, especially with the recent adjustment in benefits.
The SSA has advised that recipients can choose to have taxes withheld from their monthly checks, which can make it easier to manage their tax obligations. Jim Blair, vice president of Premier Social Security Consulting, recommended considering this option along with the possibility of adjusting the amount withheld, taking into account new increases planned for 2025.