Although Social Security has been around for decades, the program commonly undergoes changes from year to year. On October 13, the Social Security Administration released a list of changes to the program that are set to take place in 2023. Here are three big ones you should know about.
1. Benefits are increasing 8.7%
For months now, seniors have eagerly been waiting for an official cost-of-living adjustment (COLA) announcement. We now know that 2023's COLA will amount to 8.7%.
That's lower than the 11% raise some experts were projecting earlier in the year, but it's substantially higher than the 5.9% COLA seniors got at the start of 2022. It's also the highest COLA to come down the pike in decades.
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In fact, the average monthly Social Security benefit before next-year's COLA takes effect is $1,681. Once that COLA hits, the average monthly benefit will increase to $1,827.
Better yet, in 2023, the standard Medicare Part B premium is decreasing for the first time in years. Seniors who are enrolled in Medicare and Social Security at the same time have their Part B costs deducted from their benefits automatically. Since the cost of Part B is dropping, seniors will finally be in a position where they get to keep their COLAs in full.
2. The wage cap is increasing -- a lot
Social Security's main source of revenue is the money it collects in payroll taxes. But workers don't pay Social Security taxes on all of their income. Rather, each year, there's a wage cap put in place that dictates how much earnings are subject to taxes.
This year, the wage cap is set at $147,000, so earnings beyond that point aren't taxed for Social Security purposes. Next year, the wage cap is rising to $160,200. That means higher earners could see their Social Security tax burden go up a lot.
The Social Security tax rate on earnings is 12.4%. Those who are salaried workers split that bill with their employers, while the self-employed pay all of it.
This means that in 2023, the total Social Security tax burden for those earning $160,200 or more is $19,864.80. Salaried workers will therefore lose $9,932.40 of their income to Social Security.
3. Social Security work credits are getting harder to earn
Social Security isn't something everyone is eligible for off the bat. Rather, seniors qualify for benefits of their own by accruing enough work credits in their lifetimes.
The value of a work credit changes from year to year, and the maximum number of work credits that can be earned in a single year is four. This year, the value of a single work credit is $1,510. Next year, that will increase to $1,640. That's something part-time workers should be mindful of.
Stay in the know
Social Security changes can impact seniors collecting benefits, as well as workers who aren't anywhere close to that point. It's important to stay apprised of updates to the program -- and to keep these major ones in mind going into the new year.
