6 Social Security Changes That Take Effect Today

For more than 80 years, Social Security has held true to its name and provided some degree of financial security for our nation’s retirees. According to the Center on Budget and Policy Priorities, the program pulled nearly 22.5 million people out of poverty in 2020, including 16.1 million adults aged 65 and over.

But Social Security isn’t static. Its many working parts are designed to change over time. As we welcome in the new year, here are six Social Security changes that take effect today.

Image source: Getty Images.

1. Social Security checks are receiving a historic boost

The most-anticipated change is the historically large cost-of-living adjustment (COLA) being recognized in the January payouts sent to nearly 66 million beneficiaries.

Social Security’s COLA is a way for the program to account for the inflation that its beneficiaries have contended with over the past year. Ideally, benefits should increase on par with the rate of inflation so recipients (who are mostly senior citizens) don’t lose purchasing power. In 2023, beneficiaries will see an 8.7% increase in their Social Security check.

On a percentage basis, an 8.7% cost-of-living adjustment is the highest in 41 years. In terms of year-over-year nominal-dollar increase, it’ll be the largest in the program’s history. The average retired worker is expected to receive a $146 boost to their Social Security check this month.

Equally important for retired workers is that 2023 marks only the second time this century that Medicare Part B premiums — the portion of Medicare covering outpatient services — will decline from the previous year. Since most Medicare enrollees have their Part B premium automatically deducted from their Social Security check, it’ll result in a real-money boost to their pocketbook. In other words, the 8.7% COLA for 2023 could actually outpace the inflation rate and lead to a real-money improvement for many retirees.

2. The maximum monthly payout at full retirement age is on the rise

If you’re a lifetime high-earning retiree, the new year brings with it the opportunity to receive a much beefier monthly benefit check.

Last year, the maximum monthly payout a retired worker could receive at full retirement age — the age where eligible beneficiaries qualify for 100% of their payout — was $3,345. But thanks to a rapidly rising inflation rate, the maximum monthly benefit at full retirement age will jump by $282 to $3,627 in 2023. Approximately 2% of retired workers bring home this top-tier benefit check each month.

To reach this maximum monthly benefit, three criteria need to be met:

A retiree has to wait until their full retirement age (usually age 66 to 67) to claim benefits.
They’ll have to work at least 35 years, since the Social Security Administration (SSA) uses a workers’ 35 highest-earning, inflation-adjusted years when calculating their monthly benefit at full retirement age.
They’ll need to reach the maximum taxable earnings cap in each of the 35 years used by the SSA in the monthly benefit calculation.

3. High-earning workers may face a larger tax bill

But it’s not all peaches and cream for the well-to-do in 2023. If you’re a high-earning worker, you might be on the hook for a bigger tax bill this year.

Approximately 90% of the more than $1 trillion in revenue collected by Social Security every year comes from the 12.4% payroll tax on earned income (we’re talking about wages and salary, but not investment income). If you work for someone else or a company, you and your employer split this tax liability down the middle. Meanwhile, if you’re self-employed, the onus of this 12.4% tax falls entirely on you.

In 2022, all wages and salary between $0.01 and $147,000 were subject to the payroll tax. But thanks to a historically large bump-up in the National Average Wage Index, the maximum taxable earnings cap rises to $160,200 from $147,000, as of today. For the self-employed, this $13,200 year-over-year increase in the maximum taxable earnings cap could mean paying up to an extra $1,636.80 in payroll tax this year.

Image source: Getty Images.

4. Qualifying for Social Security benefits just became a little tougher

Despite what you might have heard or been told, Social Security isn’t an entitlement you receive for simply being a U.S. citizen. Rather, you earn your benefit by working. To qualify for a retirement benefit, or disability and survivor benefit coverage, you’ll need to amass 40 lifetime work credits.

While this might sound like a daunting task, it’s actually easier than you probably realize. Workers can earn a maximum of four credits each year, which means they can hit the threshold to quality for retirement benefits in as little as 10 years.

More importantly, the earned income threshold to qualify for lifetime work credits is set pretty low. Last year, a work credit was received for $1,510 in earned income. Therefore, $6,040 in earned income in 2022 would have netted a worker their full allotment of credits for the year.

As of today, you’ll have to work a bit harder to qualify for Social Security coverage. Instead of $1,510 in earned income, you’ll need $1,640 in wages or salary to earn one lifetime work credit. To receive the maximum of four work credits this year, you’ll need to earn $6,560.

5. Disability income thresholds are on the move

Social Security’s disability income thresholds represent another big change that officially takes hold today.

When most people think about Social Security, they rightly think of the more than 48 million retired workers, and the 2.7 million spouses and children of these retirees, who receive a monthly benefit. But Social Security also plays a key role in supporting the long-term disabled. As of November, 8.88 million disabled workers were receiving a monthly Social Security check that averaged $1,364.

To continue receiving a Social Security disability benefit each month, workers can only bring home so much in earned income. For non-blind disabled workers, benefits would be stopped in 2022 for earned income above $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 per month without having their benefits halted. Meanwhile, blind disabled workers will see a $200 per month increase in their earnings thresholds to $2,460.

6. Early filer withholding thresholds are increasing

The sixth and final Social Security change that takes effect today can impact retired workers who began receiving a Social Security check prior to reaching their full retirement age.

Social Security encourages patience from eligible beneficiaries and has a tendency to punish early filers in a variety of ways. One of those ways is the retirement earnings test. The retirement earnings test allows the SSA to withhold some or all of an early filers’ Social Security benefit if they generate too much earned income.

There are two very different tiers to the retirement earnings test. The first category belongs to early claimants who won’t reach full retirement age in 2023. Last year, the SSA could withhold $1 in benefits for every $2 in earned income above $19,560, or $1,630 per month. Beginning today, this income threshold increases to $21,240, or $1,770 per month.

The second category is for early filers who will reach full retirement age at some point this year. In 2022, the SSA would withhold $1 in benefits for every $3 in earned income above $51,960 ($4,330 per month) in the months prior to reaching full retirement age. Starting today, this income threshold rises to $56,520, or $4,710 per month.

Something important to note here is that the retirement earnings test is no longer applicable once you hit your full retirement age, regardless of when you began taking benefits. After age 66 to 67, depending on your full retirement age, the SSA won’t be able to withhold a penny of what you’re due, regardless of how much you earn.

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