One of the things that is often overlooked by United States citizens when we talk about the Social Security COLA is taxes. Taxes are also part of our day to day life and paying them is mandatory for all citizens who reach a minimum income. For that reason, we must watch out when we have an increase in the Social Security check as it happens with the COLA.
Although it may not seem like it to many Americans, an increase in the Social Security check can hurt them. This is because the more money we earn per month, the more money we pay in taxes. This situation is even worse if we keep in mind that some states also charge state taxes. Therefore, we can say that the COLA affects the income from the Social Security check.
Social Security payments increase every year, as all Americans already know, through the COLA. The percentage of the increase will depend on inflation for that particular year. Therefore, each year it increases differently. In the current year 2023, for example, the COLA caused Social Security checks to increase by 8.7%. This record increase caused some Americans to start paying taxes on their retirement benefit.
COLA increase may cause you to lose part of your check
As we were discussing earlier, an increase in the amount received in each Social Security check can cause us to lose money from our benefit. This is because citizens receiving a retirement may not meet the minimum taxable threshold.
However, when the COLA causes checks to increase the minimum taxable threshold does not change at any point. Therefore, we are looking at an increase in the monthly check that may hurt. This will cause many citizens who were not paying taxes before to end up paying them.
So we must be very careful with the increase of the annual COLA, since it can make us lose money. In case we are not sure about whether we should pay taxes or not, the best action we can take is to contact a specialist.
How much will Social Security increase in 2024?
Although it is still too early to determine the increase in the Social Security check in 2024, experts are talking about a figure around 3%. This increase would be a very small increase over this current year. In fact, it would also be a small increase if we take into account that inflation does not stop raising general prices.
For the time being, we can only wait to determine what the final COLA increase will be. To calculate this increase, the Federal Government and the Social Security Administration check the CPI-W increase for the months of July, August and September.
After checking that increase, the final COLA increase is made in October. However, it is not until the first of the following year’s checks that we encounter the actual increase. So during this time we may see the increase in prices but not in checks.