The Maximum Taxable Earnings Cap For Social Security Has Increased
When planning your FERS retirement, understanding the implications of the Social Security Maximum Taxable Earnings Cap is crucial, both during your working years and in retirement.
Understanding the Earnings Cap
The Maximum Taxable Earnings Cap, also known as the wage base, sets the limit on the portion of your income subject to Social Security taxes. This threshold, overseen by the OASDI program, typically increases annually based on fluctuations in the national average wage index.
Impact of the 2024 Tax Limit Increase
In 2024, the maximum earnings subject to Social Security taxes have risen from $160,200 to $168,600. As a result, employees will contribute 6.2% of their income to Social Security until their earnings exceed $168,600 in 2024. Any earnings beyond this limit are not taxed by Social Security. Federal employees also contribute 6.2% of their income, matched by their agency, until their salary surpasses the taxable maximum.
Implications for Retirement Benefits
While the higher tax cap means increased taxes once earnings reach the threshold, there’s a positive aspect. This same annual limit influences the Social Security Administration’s calculation of your retirement benefit. Consequently, individuals with higher incomes may expect a larger Social Security payout in retirement.
Regarding monthly benefits, individuals considering Social Security filing in 2024 should note that the maximum possible monthly benefit for those retiring at their Full Retirement Age (FRA) is $3,822. However, it’s important to recognize that once Social Security benefits commence, up to 85% of the benefit is subject to federal taxes. This underscores the necessity of careful tax planning for high-income retirees.
Seeking Professional Guidance
Given the intricate tax implications, it’s advisable to work with an FRC® trained advisor who can provide referrals to skilled tax professionals. This ensures comprehensive retirement planning tailored to your financial situation.
