The portion of personal income subject to Social Security tax has increased to $168,600 this year, up from $160,200 in 2023, which means some employees will have to pay roughly $521 more than they paid in 2023.
Social Security tax limits are calculated based on changes to the National Wage Index (NAWI), which tends to increase yearly. The changes keep Social Security benefits on track with current inflation. In 2024, a higher portion of wages will be subject to the 6.2% OASDI tax (old age, survivors, and disability insurance). Still, according to a recent Kiplinger report, earnings that exceed the $168,600 limit won't be subject to Social Security payroll tax. That can result in considerable tax savings for those who earn more than the wage base.
"Take, for example, an employee with an annual salary that exceeds the wage base by $10,000," Kiplinger said. "In this case, they would save $620 on Social Security taxes. On the other hand, someone who earns wages exceeding the base by $30,000 would receive a $1,860 tax break."
Employers automatically deduct Social Security taxes as part of payroll. Self-employed Americans are responsible for remitting their own Social Security taxes. Under both scenarios, most workers are required to contribute Social Security taxes up to IRS limits.
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Your Social Security benefit might be taxed
About 40% of people who get Social Security must pay federal income taxes on their benefits, according to the Social Security Administration (SSA). This usually happens when beneficiaries earn a substantial income on top of their Social Security.
Up to 85% of Social Security benefits can be taxable when income exceeds certain thresholds. As many as 26% of survey participants who have received Social Security for more than three years report they paid taxes on a portion of their benefits for the first time during the 2023 tax season, The Senior Citizens League (TSCL) said in a survey. An even greater percentage will likely pay taxes on their benefits this year because of a significant COLA increase in 2023.
In 2024, retirees earning Social Security benefits can earn up to $59,520 in the year they reach full retirement age before their benefits are reduced by $1 for every $3 in earnings over the limit. That figure is an increase of $3,000 from 2023.
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Tax season kicks off on Jan. 29
The IRS said that Monday, Jan. 29, will officially kick off the 2024 tax season when the agency will begin accepting and processing 2023 tax returns. For most taxpayers, the deadline to file their personal federal tax return, pay any tax owed or request an extension to file is Monday, Apr. 15.
Taxpayers in Maine and Massachusetts have until Apr. 17 to file their taxes because of those states' Patriot's Day and Emancipation Day holidays. People living in federally declared disaster areas may also have more time to file.
The agency expects more than 128.7 million individual tax returns to be filed by the tax deadline. Most taxpayers get their refunds within 21 days, with many available by Feb. 27.
"Some returns may require additional review and may take longer," the IRS said.
If you think you will receive a smaller refund this tax season but have debt you need to pay down, you could consider consolidating it with a personal loan. You can visit Credible to find your personalized interest rate without affecting your credit score.
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