Why Your First Social Security Check of 2023 Will Look Different

When you get your first Social Security check in 2023, it will not look the same as the last payment you got this year. There are a few primary reasons why that may be the case.

Here’s why you can expect a change to your check.

You’re going to get a big Social Security raise

The biggest thing you’ll notice when your Social Security benefit payment is deposited is that the amount of money you receive is higher. That’s because seniors are getting the largest COLA in 40 years.

COLA stands for Cost-of-Living Adjustment. In most years, retirees see benefits increase due to the COLA, which is designed to make sure they don’t lose buying power. If a consumer price index shows costs rose on a year-over-year basis, benefits go up by a comparable amount.

When the COLA was calculated for 2023, inflation had pushed prices up dramatically. As a result, retirees will get an 8.7% benefits increase next year. To figure out what that means for your payment, take a look at your current benefit and multiply it by 8.7%. This will show how much extra you’ll get. For example, if you were entitled to a $1,200 monthly benefit in 2022, your benefit amount would go up to $1,304 next year.

Your Medicare premiums are changing

In most years, retirees saw their COLA offset by rising Medicare premiums. That’s because these premiums are generally withdrawn automatically from Social Security checks. If the cost of this government-sponsored insurance goes up, seniors can lose most or all of the amount of their annual raise, depending on how big the increase is.

That won’t be the case this year. In fact, while the standard monthly Medicare Part B premium was $170.10 in 2022, it’s going down to $164.90 in 2023. Since your Medicare premiums will likely be $5.20 per month lower than they were last year, you’ll enjoy even more money in your checks after the new year.

While a Medicare premium decrease isn’t common, it’s happening in 2023 because Medicare costs came in lower than expected for 2022. This is, in large part, because projected spending on a new Alzheimer’s drug wasn’t nearly as high as some experts had feared it would be.

You could owe more Social Security tax

A bigger benefits check is a great thing, but there’s one potential downside. You could end up owing more in taxes on Social Security benefits.

You aren’t taxed on benefits until your countable income (half your Social Security plus all taxable and some non-taxable income) hits $25,000 as a single tax filer or $32,000 as a married joint filer. But these thresholds aren’t indexed for inflation. They won’t change automatically next year, even as benefits go up for retirees.

If you were taxed in the past and earn more this year, that means more of your money will likely now be subject to taxation by the IRS. And if you didn’t owe tax at all before but your income now exceeds these thresholds, you can expect to take a tax hit. Be sure you’re aware of this so you don’t end up with a surprise tax bill to contend with.

Understanding these changes is important for all current retirees, so be on the lookout for some big differences when your first 2023 check comes.

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