Social Security Checks Decreasing in 9 States Due to Tax Increase
In a significant development affecting US retirees, monthly Social Security checks in nine states are set to decrease by up to $200 starting in September. This decrease is a result of a tax hike that these states will impose on Social Security benefits. The states impacted by this tax increase are Connecticut, Colorado, Montana, Minnesota, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. On the other hand, the remaining 41 states do not impose income taxes on Social Security benefits.
It is important to note that nearly 40% of Social Security benefit recipients currently pay federal or state taxes on their checks. This is primarily due to the fact that they earn considerable income in addition to their Social Security payments. The new tax hike on Social Security benefits will be deducted from the recipients in the aforementioned nine states when they file their federal tax returns.
Dependence on Social Security Checks
Social Security benefits play a crucial role in the lives of millions of Americans. In January 2024, over 66 million people were receiving Social Security checks, with the average monthly payment estimated to be $1,907 by the Social Security Administration (SSA). For many retirees, Social Security benefits are a lifeline that helps cover their monthly expenses. In fact, for 25% of retirees aged 65 and above, the benefit makes up almost 90% of their total family income.
The concerns of retirees around high living costs, market volatility, and inflation are becoming more prominent. A recent Schroders’ Retirement Study revealed that only 4% of survey respondents are living the retirement dream, while one in three are worried that financial stress will impact their overall health.
Impact of Retirement Age on Social Security Payouts
The age at which individuals choose to start collecting Social Security benefits can have a significant impact on the amount they receive each month. For example, the average monthly income for those who start collecting payments at age 62 was $2,710 in 2024, compared to $3,822 for retirees who wait until their full retirement age (FRA). The FRA is 67 for individuals born after 1960.
Individuals who delay retirement beyond their FRA can receive a larger Social Security check, as the payout increases for every month of delay until age 70. In 2024, the average monthly check for Americans retiring at 70 was $4,873. While higher income may result in more taxes, some states, like Colorado, are working to extend Social Security tax exemptions for qualifying seniors. Presidential candidate Donald Trump has also expressed support for eliminating taxes on Social Security payments and worker tips.
Expectations for 2025 COLA
The Social Security Administration offers Cost-of-Living Adjustments (COLA) to help recipients combat inflation. The COLA is based on the change in the Consumer Price Index (CPI-W) in the third quarter of the current year compared to the same quarter of the previous year. In 2024, the COLA was 3.2%, reflecting the year-over-year inflation increase in Q3 2023.
As we look ahead to 2025, the SSA is expected to announce the COLA increase next month. Based on inflation figures until August, it is estimated that the increase will be 2.5%. If this prediction holds true, it would mark the smallest COLA increase in three years. This could be attributed to cooling inflation and the US Federal Reserve’s recent rate cut of 50 basis points in 2020.
In conclusion, the upcoming decrease in Social Security checks for retirees in nine states is a reminder of the financial challenges many older Americans face. It underscores the importance of planning for retirement and understanding the impact of various factors, such as taxes and inflation, on Social Security benefits. As policymakers and candidates debate the future of Social Security, it is crucial to consider the needs of retirees and ensure the stability of this vital program for generations to come.