We are well into the second quarter of 2023 and that means that we are anxiously awaiting the tax refund amount after filing returns for 2022. Many taxpayers unfortunately could end up with smaller refunds in 2023 thanks to recent changes in tax rules. And if you have in recent months started getting your Social Security benefits, you could be in for an unpleasant surprise.
Even Social Security payments influence your tax burden and that includes the social security benefits that you are eligible to receive. For those who received Social Security benefits in 2022, there is important information that they should know about filing their income tax returns.
Paying Income Tax On Social Security Payments
Whether you end up paying income tax on Social Security is linked to your tax filing status and your combined income, which is your Social Security income and other income together. It is the tax-exempt interest that you earned throughout the year plus 50% of your Social Security benefits and your Adjusted Gross Income.
AGI includes wages, interest, dividends, self-employment income, and other income deemed taxable. And once you have added up all these numbers, the rest depends on the total plus how you file your returns.
For individuals with a combined AGI below $25,000 will not have to pay any taxes. For individuals with a combined AGI between $25,000 and $34,000, the amount that will be taxed is 50% of the Social Security benefits. For individuals with an AGI above $34,000, the amount to be taxed is 85% of the Social Security benefits.
In the case of married couples filing jointly, families with an AGI of less than $32,000 will not be taxed on the Social Security payments. In the case of couples with a combined AGI of between $2,000 and $44,000, 50% of the Social Security benefits will be taxed.
For married couples filing jointly and with a combined AGI above $44,000, 85% of the Social Security benefits will be taxed. There are also thirteen states that partially tax Social Security benefits.
Two Payments Of Social Security In June 2023?
Social Security payments have come a long way since it was created in 1935 to pay retired workers a continuous flow of income even after they retire. At present an average of 67 million Americans receive a Social Security benefit every month, says the Social Security Administration (SSA).
The payments typically come on a fixed date each month. But is there going to be a second payment in June this year that is a bonus? The Social Security Administration has clarified that Social Security recipients will not receive a bonus payment in June.
The Social Security payments are sent out sticking to a strict schedule. Recipients typically receive their prices on the 2nd, 3rd, and 4th Wednesday of each month, depending on their birthdate.
But beneficiaries who receive Supplemental Security Income (SSI), such as those received by the disabled, those above 65 years, or those with very limited financial resources, normally receive their Social Security payments on the first of each month. But if the first day of the month is a federal holiday, this could create a problem. This is the case with July 1 this year being a Saturday.
The SSA has worked out a way out of that. SSI payments go out on the nearest business day. It so happens that SSI recipients will receive two payments in June. They will get paid on both June 1 and again on June 30.
But the July payments that are being aid in Juen should not be perceived as a bonus payment and the payment is merely a technical adjustment.
Other than in June, SSI beneficiaries will also receive 2 payments, one in advance, in September (for October), and December (for January). The same schedule adjustment also goes for other payments if the first day of the month falls on a holiday.
If the debt ceiling is not raised by Congress, the US government could default on the financial obligation that it faces. This is a bitter possibility solely for the reason that the federal government is yet to outline a framework that will prioritize a section of payments.
President Joe Biden, US Treasury Secretary Janet Yellen, and leading American economists have already warned that a default would be a dangerous trend. It would have catastrophic consequences and sink the American economy.
Will A Default Lead To A Total Stop Of Payments?
Beneficiaries have been regularly worried at this stage and have expressed fears that they would miss out on future Social Security payments in case the US defaults in its payment.
Though there remains a possibility that Social Security recipients would continue receiving their stimulus checks, it remains not clear who would get their payment first or miss out in the event of any default.
The federal government too has not dwelt on the issue or has outlined a time frame that would prioritize certain SS payments over others.
While the United States has never defaulted on its obligatory payments following the failure to increase the ceiling. That indicates that no playbook has been established by which the Treasury Dept could suspend or raise the debt limit if Congress fails to work a way out.
If the Treasury exhausts its cash or is prevented from borrowing money, the government can continue paying bills using incoming tax revenues to pay its bills.
But the federal government regularly spends more than its normal revenue and this leads to a perennial revenue deficit each year. In such a situation, the government will fail to make all of its payments on time or in full.
But there is no precedent or legal framework that permits the Treasury to decide on which bill it will pay first. And as there is no prioritization, in the event of a default, it would be a terrible bind for the Treasury. The only answer it can give is that they do not anticipate a default and there is no possibility of a default.