Written by Lauren Ferraro, CFP®, CPC, CPFA, AIF® – Senior Wealth Manager
Whether you’re sitting around the dining room table, playing golf with friends, in the office, or at the gym, It often seems as though the word “retirement” cannot be mentioned or discussed without “Social Security” joining the conversation as well. Social Security is a key part of most individual’s retirement plan including their income plan and their decision on when exactly to retire or stop working. While there are copious amounts of factors to be discussed and filtered through when talking to a family or individual about Social Security and their retirement, today I wanted to share a few key changes to note or look forward to in the new year.
First off, the Cost of Living (COLA) adjustment for Social Security is 3.2%. The COLA is based on the Consumer Price Index. Presently, the 10-year COLA average is 2.58%.
Social Security is subject to Federal and State taxes for certain states, including Missouri. For Missouri state taxes, under current law, exemptions allowed for Social Security income are phased out for single taxpayers earning more than $85,000 and married couples with incomes above $100,000, the good news is that this will be changing for Missouri residents. In July of this year (2023), Governor Parsons signed a bill to exempt Social Security benefits from Missouri state taxes, regardless of income level, this change will take effect in January 2024.
Social Security is not Federally taxed automatically. Most Wheelhouse clients and prospects are subject to Federal taxation of Social Security, based on the income thresholds that follow. For an individual filing taxes, if their income is between $25,000 and $34,000, up to 50% of benefits may be taxable. For an individual with income greater than $34,000, up to 85% of the benefits may be taxable. For married filing joint tax returns, if combined income is between $32,000 and $44,000, up to 50% of the benefits may be taxable. If income is greater than $44,000, up to 85% of the benefits may be taxable.
A separate form, W-4V (voluntary withholding request form), must be completed to elect Federal tax withholding. Here at Wheelhouse, many of our clients are recommended to complete this form to elect Federal tax withholdings from Social Security, but this suggestion varies based on each person and family’s specific situation. If you are unsure if you should be withholding Federal Taxes give us a call at 636.400.7889, we’d be happy to take a closer look at your specific situation and portfolio.
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