There has been a substantial rise in the Social Security and Supplemental Security Income benefits. It will significantly benefit million as an 8.7% Cost of Living Adjustment (COLA) has been announced by the federal administration. The payments will start in 2023 and will benefit around 65 million Social Security beneficiaries.
The substantial increase in the payment amount assumes significance as there were no stimulus checks in 2022 and none are expected in 2023 with President Biden losing control of the House of Representatives.
Over 7 million Supplemental Security Income (SSI) beneficiaries will receive a boost in their income starting December 30, 2022. And many people will benefit both from the Social Security payments and also SSI benefits.
The highest amount possible will increase to $160.2 though that is subject to Social Security taxes. the earning limits set for workers younger than the full age of retirement will increase to $21,240. One dollar has been decreasing from the benefits for each of the 2 dollars that are earned over $21,240.
The beneficiaries’’ earning limits for those who will cross the full retirement age in 2023 will witness a substantial increase and will go up to $56,520. Further, a dollar is deducted from the benefits for every three dollars that are earned over $56,520. This continues till workers reach full retirement age.
There is no limit on the earnings for workers who reach the full age of retirement for more than the complete year. Social Security recipients are getting their highest COLA in over 4 decades with the highest last recorded in 1980, which was a hefty 14.3%. experts have advised people to plan for taxes tactically and should plan well in advance.
Retirees depending on SS remuneration for income stand to profit from this record inflation that reached the highest since November 1981. It even crossed the 9% mark and touched 9.1% in June 2022.
But a couple of other factors may offset the monthly stimulus check amount in 2023 and those are the joint and individual benefits and the amount of the premium of Medicare Part B.
One positive indication comes as the standard premium in part B of Medicare each month including outpatient expenses and medical coverage is expected to go down by 3% next year. it will come down to $164.9 from $170.1.
Since such premiums normally go out straight from the beneficiaries’ amount, the lowering of rates will help beneficiaries get their highest COLA increase. Though a higher rate of COLA could also force beneficiaries into the upper bracket of income tax than their present status.
The substantial increase in the COLA is music to the ears of retirees who are among the most affected of people from the economic ravages of the pandemic. the rise in prices that have covered all services and products has affected everything from gasoline to groceries, while house rent has also been affected substantially.
But enrolled agents and financial planners say that the 2023 increase is poised to be significant and exciting, though beneficiaries could envision the certain impact that it will have on their income tax returns for 2023 to be filed in the first quarter of 2024. These tax factors can have a trickle-down effect and encompass various expenses after retirement.
The Calculation Of The Social Security Payments
The income tax charged on remuneration for Social Security is calculated based on a formula that is referred to as combined or provisional income. The amount is calculated by taking the Adjusted Gross Income for the calculating year and adding back the non-taxable component of the interest plus 50% of social benefits.
The Social benefits income tax applies to individual income tax filers starting with joint benefits of $25,000 and to a married couple filing their income tax returns jointly it comes starting with a joint AGI of $32,000. For filers with an AGI of over $34,000 as joint income and married couples filing jointly with over $44,000, the amount taxable could be 85%.
The threshold is not adjusted for inflation or an increase in wages. So with time, it has led to additional beneficiaries shelling out taxes on their benefits. The Center for Retirement Research of Boston College revealed these figures.
Bringing Down The Social Security Payment Taxes
With an expected increase of around 7% in the tax range, beneficiaries should not make the mistake of assuming that they can withdraw 7% more from their individual retirement account next year and also pay the same tax. This will not happen as a big chunk of the Social stimulus payments have turned taxable.
But there is still some wiggle room for beneficiaries. They get to increase their retirement benefit amount even by not increasing their taxes. for example, married couples who are both above 65 years and enjoy social benefits of $35,000 could get still withdraw close to $24,000 this year without paying income tax.
But in 2023 this benefit from the Social Security Administration would go up to above $38,000 with the COLA. the amount that gets to be withdrawn then without attracting income tax payments then goes up to around $24,800. This is an approximate amount they can withdraw without paying income tax.
And if the couple enjoys a benefit of $60,00, they get to withdraw $18,703 without shelling out income tax. But in 2023, with the benefits rising to $65,220, the amount that can be withdrawn goes down to $18,585 beyond which the amount would attract federal income taxes.
There may be a variation in the results based on the financial condition of the couple or individual income tax filer. Beneficiaries who get to select what they can safely withdraw from their supplemental income should get a revaluation done each year and gain the maximum results.
Experts say that it is important to set a goal to identify a host of retirement income schemes that might work for each individual or couple and keep the income within limits. Those who have saved money in both retirement accounts and various other accounts can arrive at an estimate through the use of the latest software and also by changing their withdrawal.