Medicare Part B premiums of $203/month are automatically deducted from Social Security checks, though a hold harmless provision prevents benefits from actually shrinking.
Social Security benefits become taxable once provisional income exceeds $25,000 for singles or $32,000 for joint filers, and these thresholds have never been adjusted for inflation.
The IRS can garnish up to 15% of Social Security benefits for unpaid taxes, but proactively setting up an installment plan prevents the clawback.
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Millions of older Americans need their Social Security checks to get by in retirement. And without that money, a lot of people wouldn't be able to cover their basic expenses.
You may be used to collecting a certain amount of money from Social Security each month. But the checks you rely on could shrink suddenly, and that's an important thing to brace for.
Here are three reasons why you could start getting less money from Social Security each month.
One big myth about Medicare is that coverage is free. In reality, enrollees can pay quite a lot for Medicare.
While Part A, which covers hospital care, doesn't charge a premium in most cases, there are premiums associated with Part B, which covers outpatient care. The standard monthly premium for Part B this year is $202.90, and higher earners can pay even more,
Seniors who collect Social Security and enroll in Medicare pay for Part B out of their monthly benefits. So that's one reason your checks could shrink, albeit not such a terrible one, since you're getting health coverage in return.
The good news is that even though the cost of Part B can rise over time, your Social Security benefits cannot decrease as a result of that. Thanks to a hold harmless provision, if an increase in Part B ever exceeds a cost-of-living adjustment (COLA), the worst thing that would happen is that benefits would stay flat.
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You might assume that your Social Security benefits are yours to collect tax-free. But if your income exceeds a certain threshold, your benefits could be taxed.
The taxation of Social Security depends on provisional income. That's calculated as your adjusted gross income plus tax-exempt interest you earn plus 50% of your annual Social Security checks.
If you're single, you could have benefits taxed once your provisional income reaches $25,000. If you're married filing a joint tax return, your Social Security benefits could be taxed once your provisional income reaches $32,000.
Now it may be that at first, you aren't subject to taxes on your Social Security because your income is low enough. But even if your income outside of those benefits does not increase, your benefits are likely to rise over time due to annual COLAs.
The provisional income thresholds, however, which were put in place decades ago, do not get an inflation adjustment the same way COLAs do. For this reason, your benefits might be taxed eventually even if your broad financial situation doesn't really change much.
The IRS doesn't take unpaid taxes lightly. If you're on Social Security and owe money in taxes, you could have up to 15% of your benefits clawed back to make the IRS whole.
The good news is you can potentially avoid this if you reach out to the IRS and work out an installment agreement to pay off a tax bill you owe. If you simply blow off a tax debt, the IRS can pursue different types of garnishment, which includes taking a portion of your Social Security checks.
If you've saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.
Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)
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