For more than 80 years, Social Security stayed true to its name and provided a degree of financial security to our country’s retirees. According to the Center on Budget and Policy Priorities, the program lifted nearly 22.5 million people out of poverty in 2020, including 16.1 million adults aged 65 and over.
But social security is not static. Its many working parts are designed to change over time. As we welcome the new year, here are six Social Security changes that go into effect today.
Image source: Getty Images.
1. Social Security checks get historic boost
The most anticipated change is the historically significant cost-of-living (COLA) regulations recognized in January payouts sent to nearly 66 million recipients.
The Social Security COLA is a way for the program to account for the inflation its beneficiaries have faced over the past year. Ideally, benefits should increase at the same rate as the rate of inflation so that recipients (who are mostly elderly people) do not lose purchasing power. In 2023, recipients will see their Social Security check increase by 8.7%.
On a percentage basis, a cost of living adjustment of 8.7% is the highest in 41 years. In terms of year-over-year nominal dollar increase, this will be the largest in the program’s history. The average retired worker is expected to receive a $146 increase in their social security check this month.
Equally important for retirees is that 2023 marks only the second time this century that premiums for Medicare Part B — the part of Medicare covering outpatient services — will decline from a year earlier. Since most Medicare enrollees have their Part B premium automatically deducted from their Social Security check, this give their wallet a real money boost. In other words, the 8.7% COLA for 2023 could actually outpace the rate of inflation and lead to real money improvement for many retirees.
2. The maximum monthly payment at full retirement age is up
If you’re a high-income retiree, the New Year brings you the opportunity to receive a much larger monthly benefit check.
Last year, the maximum monthly payment a retired worker could receive at full retirement age – the age at which eligible beneficiaries are entitled to 100% of their payout – was $3,345. But thanks to a rapidly rising rate of inflation, the maximum monthly benefit at full retirement age will increase by $282 to $3,627 in 2023. About 2% of retired workers take home that check top-notch services every month.
To reach this maximum monthly benefit, three criteria must be met:
- A retiree must wait until full retirement age (usually between 66 and 67) to apply for benefits.
- They will have to work for at least 35 years, since the Social Security Administration (SSA) uses a system 35 highest earning years, adjusted for inflation when calculating their monthly pension at full retirement age.
- They will have to reach the maximum taxable earnings ceiling in each of the 35 years used by the SSA in calculating monthly benefits.
3. High-income workers could face a bigger tax bill
But it’s not all peaches and cream for the well-to-do in 2023. If you’re a well-paid worker, you might face a bigger tax bill this year.
About 90% of the more than $1 trillion in revenue collected each year by Social Security comes from the 12.4% payroll tax. earned income (we are talking about wages and salaries, but not investment income). If you work for someone else or for a company, you and your employer share this tax liability. Meanwhile, if you are self-employed, the burden of this 12.4% tax falls entirely on you.
In 2022, all wages and salaries between $0.01 and $147,000 were subject to payroll tax. But thanks to a historically large increase in the national average wage index, the cap on maximum taxable earnings goes from $147,000 to $160,200, nowadays. For the self-employed, this $13,200 year-over-year increase in the maximum taxable earnings cap could mean paying up to an additional $1,636.80 in payroll taxes this year.
Image source: Getty Images.
4. Qualifying for Social Security benefits just got a little tougher
Despite what you may have heard or heard, Social Security is not a right you receive for simply being a US citizen. On the contrary, you gain your advantage by working. To qualify for a retirement benefit or disability and survivor benefits coverage, you will need a mass of 40 lifetime work credits.
Although it may seem like a daunting task, it’s actually easier than you probably think. Workers can earn a maximum of four credits each year, meaning they can qualify for pension benefits in as little as 10 years.
More importantly, the earned income threshold to qualify for lifetime work credits is set quite low. Last year, a work credit was received for $1,510 of earned income. Therefore, earned income of $6,040 in 2022 would have earned a worker all of their credits for the year.
From today you have to work a little harder to qualify for social security coverage. Instead of $1,510 in earned income, you will need $1,640 in salary or wages to earn a lifetime work credit. To receive the maximum four work credits this year, you will need to earn $6,560.
5. Disability income thresholds are on the move
Social Security Disability Income Thresholds represent another big change that officially takes hold today.
When most people think of Social Security, they rightly think of the more than 48 million retired workers and the 2.7 million spouses and children of those retirees, who receive a monthly benefit. But Social Security also plays a key role in supporting people with long-term disabilities. In November, 8.88 million workers with disabilities received monthly social security checks averaging $1,364.
To continue receiving a Social Security disability benefit each month, workers can only report a certain amount of earned income. For non-blind disabled workers, benefits would stop in 2022 for earned income over $1,350 per month. For blind disabled workers, this monthly threshold was set at $2,260 last year.
Having turned the page to 2023, non-blind disabled workers will be able to earn $1,470 a month without having their benefits cut off. Meanwhile, workers with disabilities who are blind will see a $200 per month increase in their earnings thresholds to $2,460.
6. Withholding tax thresholds for early filers are increasing
The sixth and final Social Security change that takes effect today may impact retired workers who began receiving a Social Security check before reaching full retirement age.
Social Security encourages the patience of eligible beneficiaries and tends to punish first-timers in various ways. One such means is the retirement income test. The retirement income test allows the SSA to withhold some or all of first-filers’ Social Security benefits if they generate too much earned income.
There are two very different levels for the retirement income review. The first category is for early claimants who will not reach full retirement age in 2023. Last year, the SSA could withhold $1 in benefits for every $2 of earned income above 19,560 $, or $1,630 per month. Effective today, that income threshold increases to $21,240, or $1,770 per month.
The second category concerns the first declarants who will be Reach full retirement age at some point this year. In 2022, the SSA would withhold $1 in benefits for every $3 of income earned above $51,960 ($4,330 per month) in the months before full retirement age. Effective today, that income threshold increases to $56,520, or $4,710 per month.
It is important to note here that the retirement income test is no longer applicable once you reach full retirement age, regardless of when you started receiving benefits. After age 66 to 67, depending on your full retirement age, SSA will not be able to withhold a penny of what is owed to you, regardless of how much you earn.
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