Social Security Recipients Will See a COLA Increase of 3.2% in 2024
Social Security Releases 2024 changes for wage earners
In response to the persistent pressures of inflation, the Social Security Administration (SSA) has announced its plan for a cost-of-living adjustment (COLA) in 2024. This is among several recent announcements by the SSA, underscoring their commitment to adapt and support beneficiaries amid economic fluctuations.
With over 71 million individuals relying on Social Security’s array of benefit programs, these annual revisions invariably draw widespread attention. While the 2024 increase may not match the remarkable 8.7% surge witnessed the previous year — the largest in four decades — the current 3.2% increase will provide some relief to those beneficiaries grappling with fixed incomes.
Impact For Wage Earners
FICA Tax Withholding Updates
FICA (Federal Insurance Contributions Act) is the amount of taxes taken out of a wage earner’s paycheck. It is a combination of Social Security and Medicare taxes. This totals 6.2% Social Security tax and 1.45% Medicare tax for most wage earners. Your employer matches this amount.
- Social Security Withholding Tax Changes
For 2024, the wage base limit will be $168,600 annually, up from $160,200 in 2023. The first $168,600 of your wages is subject to the 6.2% Old Age, Survivors and Disability Insurance (OASDI) tax. Both you and your employer will contribute up to a maximum of $10,453 in taxes, with each party seeing a $521 increase compared to the previous year. For example, if your gross earnings are $2,000, then $124 (6.2%) will be withheld from your paycheck. Your employer also contributes $124.
- No Changes to Medicare Withholding Tax
While the OASDI tax limit is changing, the Medicare hospital insurance tax of 1.45% for employees and employers will remain unchanged for 2024. It’s important to note this tax does not have a wage limit. If your income exceeds $200,000 (or $250,000 for married couples filing jointly or $125,000 for married taxpayers filing separately), you will continue to pay an additional hospital insurance tax of 0.9% of your wages with respect to employment.
Impact For the Self-Employed
If you’re self-employed, you will still be responsible for paying self-employment tax in 2024. This includes the combined OASDI and Medicare taxes, which amounts to 12.4% of your net self-employment income up to the OASDI wage base, along with 2.9% in Medicare taxes on any additional self-employment income. This combined rate is 15.3%. However, there is an offsetting above-the-line income tax deduction for half the self-employment tax, which remains unchanged.
Adjustments for Social Security Recipients
- Cost-of-Living Adjustment
The SSA has announced a cost-of-living adjustment of 3.2% for both Social Security and Supplemental Security Income benefits beginning in Jan. 2024. This increase is based on the consumer price index and follows an 8.7% rise from a year ago.
- Changes in Earnings Limits
In 2024, the earnings limits for retirees receiving Social Security benefits will change. If you are reaching full retirement age in 2024, you can earn up to $59,520 in the months before full retirement age. If that earnings limit is exceeded, your benefits are reduced by $1 for every $3 in earnings over the limit, an increase of $3,000 from 2023. Beneficiaries receiving benefits younger than full retirement age can earn up to $22,320 in 2024 before their benefits are reduced by $1 for every $2 in excess earnings, up from $21,240 in 2023.
- Maximum Social Security Benefit
The maximum Social Security benefit for a worker retiring at full retirement age will increase to $3,822 per month in 2024 from $3,627 in 2023. An average monthly benefit will increase by more than $50, from $1,841 to $1,900 per month. This change may impact your retirement planning, so it’s something to keep in mind as you prepare for the future.
These upcoming changes to the Social Security system in 2024 have important implications for your financial well-being and retirement plans. A good rule of thumb is to check your Social Security earnings statement annually. Click here to find out how.
If you have any questions or need assistance with planning for these changes, please reach out to an Adams Brown advisor who can provide you with personalized guidance.