Big changes are coming to Social Security in 2023 after inflation hit the highest level in four decades last year. For the 66 million people who benefit from the program, it’s important to understand these changes as they begin to take effect.
The size of Social Security checks is changing, as are the Social Security taxes that many people will pay and the income thresholds for many people seeking to claim certain benefits. Here are four big changes to Social Security in 2023.
1. Higher benefits
Social Security benefits are increasing by 8.7% this year thanks to the administration’s annual cost-of-living-adjustment (COLA).
COLAs are put in place to protect retirees’ purchasing power, so in years with high levels of inflation, there is usually a larger COLA to offset higher costs. The increase will be welcomed by seniors who will see prices rise across the board in 2022.
The average Social Security check in November was $1,632; An 8.7% increase would lift that average benefit by $142, more than $1,700 for the year.
2. Higher taxes for higher earners
The Social Security program is funded primarily by payroll taxes. The Social Security Administration (SSA) charges a 6.2% tax on both individuals and employers, or a 12.4% tax on self-employed workers.
But there is a limit to how much of a person’s income is subject to tax, known as the benefit base, and this limit generally applies to higher earners. In 2022, the benefit’s basis is $147,000; The benefit base increases to $160,200 in 2023 to cover higher benefits.
3. Increasing income limits for early filers
The way Social Security works, in general, it rewards retirees for delaying their benefits and penalizes them for claiming benefits before their full retirement age (FRA). FRA is 67 for those born in 1960 or later.
But for those claiming early, there are other considerations beyond reducing the size of your monthly benefit. If you claim Social Security before your FRA and still earn money, the Social Security Administration will also withhold $1 in benefits for every $2 you earn above a certain earnings threshold. In 2022, that threshold was $19,560, but this year, it’s rising to $21,240, meaning you can keep an extra $840 each year.
If that $21,240 appears to be less, SSA adjusts its formula for benefit recipients who will reach their FRA in the current calendar year. In this case, the threshold for 2023 is $56,520 (up from $51,960 last year). Not only that, the SSA only withholds $1 of every $3 of earnings above that amount.
Once you reach full retirement age, any benefits withheld from you due to the income limits discussed above will be returned to you in a larger monthly check.
4. Higher income threshold for disabled workers
Last November, nearly 8.8 million disabled workers received Social Security Disability Insurance (SSDI) benefits. Their check sizes averaged $1,233 per month.
To qualify for benefits, a person must work in a field covered by the program and also have a qualifying medical condition that meets the SSA’s definition of disability.
Also, to qualify for SSDI, people are only allowed to take home a certain amount of earnings. Monthly earnings in 2022 could be $1,350 for workers with disabilities who are not blind. Last year the limit for disabled workers who are blind was $2,260. This year those thresholds rose to $1,470 and $2,460, respectively.