There are a lot of big changes coming to Social Security in 2023 after some of the highest levels of inflation in four decades hit last year. For the 66 million people receiving benefits from the program, it will be 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 looking to claim certain benefits. Here are four big changes to Social Security in 2023.
1. Higher benefits
Social Security benefits are rising by 8.7% this year thanks to the administration’s annual cost-of-living-adjustment (COLA).
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COLAs are put in place to protect retirees’ purchasing power, so in years with high levels of inflation, there is typically a bigger COLA to offset the higher expenses. The raise will be welcome by seniors who just dealt with climbing prices across the board in 2022.
The average Social Security check was $1,632 in November; an 8.7% boost would lift that average benefit by $142, a bump of more than $1,700 for the year.
2. Higher taxes for higher earners
The Social Security program is largely funded 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 earnings are subject to taxation, known as the benefit base, and this limit typically comes into play for higher earners. In 2022, the benefit base was $147,000; in 2023 the benefit base is rising to $160,200 to help cover the higher benefits.
3. Income thresholds for early filers on the rise
The way Social Security works, in general, is that it rewards retirees for delaying their benefits and penalizes them for claiming benefits before their full retirement age (FRA). The FRA for those born in 1960 or later is 67.
But for those claiming early, there are other considerations beyond the reduction to 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 of benefits for every $2 you earn above a certain income threshold. In 2022, that threshold was $19,560, but this year, it is rising to $21,240, meaning you can keep an additional $840 per year.
If that $21,240 seems low, the SSA does adjust its formula for benefit recipients who will be reaching their FRA in the current calendar year. In those cases, the threshold rises to $56,520 for 2023 (up from $51,960 last year). Not only that, but the SSA only withholds $1 out of every $3 of earnings above that amount.
Once you do reach full retirement age, any benefits withheld from you due to the income limits discussed above are returned to you through bigger monthly checks.
4. Higher income thresholds for disabled workers
Last November, there were roughly 8.8 million disabled workers receiving Social Security Disability Insurance (SSDI) benefits. Their check sizes on average were $1,233 per month.
To qualify for benefits, a person must have worked 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. For disabled workers who are not blind, monthly earnings in 2022 could be $1,350. For disabled workers who are blind the limit last year was $2,260. This year those thresholds have risen to $1,470 and $2,460, respectively.
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