When Social Security benefits are adjusted for inflation, you may wonder what that means for your taxes. The cost of living adjustment (COLA) is an annual increase to Social Security benefits to help keep up with the rising costs of living. Here, you’ll learn about the tax impacts of a COLA increase and what you need to know.
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1. Whatis COLA?
The COLA is an annual increase to Social Security benefits that help keep up with the rising costs of living. It is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures the changes in prices for goods and services in the U.S. economy.
2. When was the last COLA and how much was the increase?
The most recent COLA was 1.3% for 2022. This increase was a bit higher than the previous year’s increase of 1.0%. The Social Security Administration determines the COLA increase each year and announces it in October, with the increase taking effect the following January.
3. As a Social Security beneficiary, how can I be sure to get the COLA?
If you receive Social Security benefits, you will automatically receive the COLA increase as long as you remain eligible. It is important to keep your address and other information up-to-date with the Social Security Administration so that you receive your benefits and COLA increase without any interruptions.
4. How are my Social Security benefits taxed?
Social Security benefits may be taxed if your total income, including benefits, exceeds a certain amount. For single filers, up to 50% of benefits may be taxed if your income exceeds $25,000. For joint filers, up to 50% of benefits may be taxed if your income exceeds $32,000. Additionally, up to 85% of benefits may be taxed if your income exceeds $34,000 for single filers or $44,000 for joint filers.
5. Can the COLA increase affect my taxes?
The COLA increase can potentially affect your taxes if it increases your total income, including benefits, above the threshold for taxable Social Security benefits. It is important to keep track of your total income and benefits to determine if your COLA increase will affect your taxes. You may also want to consider working with a financial advisor or tax professional to help you understand how the COLA increase may impact your taxes.
The COLA increase is an annual adjustment to Social Security benefits to help keep up with the rising costs of living. While it may potentially affect your taxes, it is important to keep track of your total income and benefits and consider working with a financial advisor or tax professional to understand the impact of the COLA increase on your taxes.
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