Why Social Security beneficiaries may owe more taxes on benefits

A record 8.7% cost-of-living adjustment helped Social Security beneficiaries stave off the effects of inflation in 2023.

But as they file their federal returns this tax season, they may be surprised to find more of their benefit income has been taxed.

Capitol Hill lawmakers on both sides of the aisle have put forth proposals to eliminate those levies on benefit income altogether.

Rep. Angie Craig of Minnesota, who is championing a bill with fellow Democrats, calls the idea a “win-win.”

“It’s a tax cut for seniors and a way to ensure more Americans can depend on the Social Security benefits they’ve earned,” Craig said in a statement.

But experts say eliminating taxes on Social Security benefit income may be a tough ask as the program faces a funding shortfall.

The 8.7% cost-of-living adjustment, or COLA, for 2023 — prompted by record high inflation — was the biggest annual increase in four decades. The Social Security Administration estimated it would put an extra $140 per month on average in beneficiaries’ monthly checks.

The year before — 2022 — the cost-of-living adjustment was 5.9%.

Both increases were substantially higher than the 2.6% average annual increase to benefits over the past 20 years due to record high increases in prices.

As inflation has started to subside, a 3.2% cost-of-living adjustment for 2024 has come closer to that average.

But even as recent annual adjustments spiked, the thresholds at which Social Security benefits are taxed have stayed the same.

Up to 85% of Social Security benefit income may be taxed.

The levies are applied to combined income, or the sum of half your benefits and total adjusted gross income and nontaxable interest.

If your combined income as an individual tax filer is between $25,000 and $34,000 — or between $32,000 and $44,000 if married and filing…