TSCL Says Social Security COLA Could Trigger (More) Taxes for Seniors

December’s Social Security cost-of-living adjustment (COLA) didn’t keep pace with inflation, but a new report says that Social Security beneficiaries could be riding an inflation rollercoaster this year, courtesy of 2023’s 8.7% COLA—alongside static income thresholds for taxation of benefits.

December inflation for the CPI-W, the same price index used to calculate the COLA, indicates that inflation was 3.3%, slightly higher than the 3.2% Social Security COLA, according to a press release from The Senior Citizens League (TSCL). However, the organization says the “far bigger” story is the long-term inflation model, which they say suggests the COLA for next year could drop to 1.4%—the lowest level since 2020.

Taxes Taking More

The organization reminds Social Security recipients that they will need to run the numbers this tax season to determine if their Social Security benefits are taxable—perhaps for the first time. The TSCL claims that during the 2023 tax season, 23% of survey participants who received Social Security for three years or more said they paid tax for the first time (while 28% said they were either uncertain or hadn’t been claiming for three years).

Mary Johnson, Social Security and Medicare policy analyst for the TSCL, says they expect that the higher Social Security income will not only cause more Social Security recipients to pay taxes on their benefits this tax season, “but taxes are taking a bigger portion of Social Security checks in 2024.”

Bracket ‘Bust?’

While inflation has continued to boost benefit levels, and unlike federal income tax brackets, the income thresholds that subject Social Security benefits to taxation have never been adjusted for inflation since the tax became effective in 1984. That’s right—Social Security benefits above certain income levels are subject to taxation.

This not only means that more older taxpayers become liable for the tax on Social Security benefits over time, but the portion of taxable benefits can increase as retirement income grows, according to the TSCL. If these thresholds had been adjusted more like federal income tax brackets, the individual filing status level of $25,000 would be over $75,250, and the joint filer level would be more than $96,300 based on inflation through December 2023, the TSCL explains.