More Social Security recipients will owe taxes this year and next than in previous years. And pensioners' benefit taxes will likely rise.   Why? Soaring inflation.

Why is surging inflation increasing taxes for older Americans?

Inflation is at a 40-year high, with goods and services costing 8.6% more than a year ago. This is a problem for seniors because it could lead to higher Social Security taxes.

If your provisional or countable income is below a certain threshold, Social Security benefits aren't taxed. Single filers must have $25,000 and married couples $32,000. Half of Social Security benefits, taxable income, and nontaxable income count as provisional income. If you earn more than these limits, the IRS may tax up to 85% of your benefits.

These criteria at which benefits become taxed aren't linked to inflation, which hurts seniors. Since 1983, when benefits were initially taxed, they haven't changed. Less than 10% of beneficiaries originally payed these taxes, but now roughly half of all households do, and more will in 2022 and 2023 due to inflation.

Due to substantial price increases, retirees earned a large cost-of-living adjustment (COLA) in 2022. Next year's COLA should be bigger. COLAs make ensure benefits don't lose purchasing power. With increasing benefits, seniors' incomes rise and more owing Social Security taxes.

Inflation forces many seniors to boost retirement account withdrawals. This and the Social Security hike will boost salaries. Greater income means more taxable Social Security payments.  Non-retirees may also see salary growth boost their income, but regular income tax rates are increased to keep pace with inflation, unlike Social Security benefit limits. Seniors have this problem.

Retirees need to prepare to pay for these taxes on benefits

Retirees must be aware of these unfavourable laws so they can cover larger tax bills this year, next year, and in the future if their income has gone above the level where benefits become taxable for the first time — or if the portion of their Social Security benefits that is taxable is increasing. By having the proper amount withheld from Social Security and changing your budget, you won't face financial difficulty from a bigger IRS obligation.

The $18,984 Social Security bonus most retirees completely overlook

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