Social Security will see some changes in 2023 that could affect both current and future workers. But while many modifications are built into this retirement program, some things will stay the same.
Whether you're already collecting benefits or are working and paying into the system to collect them in the future, here's what you need to know about how things will be different with Social Security in 2023.
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Three rules that will change
Here are three big changes affecting Social Security that will go into effect in the new year:
- The level of earnings subject to tax: In 2022, workers pay Social Security tax on earnings up to $147,000. If they make more than this amount, the rest of their earnings will not be taxed for Social Security. This limit is called the wage base limit. It exists because retirement benefits equal a percentage of average wages and it wouldn't make sense to pay very high earners huge monthly benefits. As a result, the amount of wages that are taxed (and used to determine benefits) is capped. In 2023, however, that cap is increasing to $160,200. Those who make over $147,000 can expect to see more money withheld from their paychecks next year. That's not all bad news, though, since it means their future Social Security benefit payments will be higher because of it.
- The retirement income current retirees receive: Retirees are getting an 8.7% cost-of-living adjustment (COLA) in 2023, so every senior who is currently receiving a check can expect it to be bigger next year. The maximum possible Social Security benefit is also increasing from $4,194 per month in 2022 to $4,555 per month next year. This max benefit is available only to very high earners who had incomes above the taxable maximum mentioned above for at least 35 years of their career. Still, every senior will see more money to help them cope with the surging inflation the country has experienced over the course of the year.
- How much you can earn before forfeiting benefits: For current retirees who are collecting benefits early but also holding down a job, there's good news, too. Seniors who haven't hit full retirement age (FRA) yet temporarily lose $1 in benefits for every $2 earned above $19,560 in 2022 (if they won't hit FRA at all during the year). They also lose $1 in benefits for every $3 earned above $51,960 if they'll hit FRA at some point during the year but haven't yet. These earning limits are going up to $21,240 and $56,520, respectively, in 2023. That means it's possible to make a lot more money without Social Security being affected.
These changes to the rules are automatic and will go into effect on Jan. 1, 2023.
Two rules that will stay the same
Despite these big shifts, there are two rules that you can expect to remain the same in 2023. Here's what they are:
- The threshold at which Social Security benefits become taxable won't change: Retirees currently don't pay Social Security taxes on benefits until their countable income exceeds $25,000 for single tax filers or $32,000 for married joint filers. After that, benefits are partly taxed by the IRS, with up to 85% of benefits considered taxable depending on just how high your earnings are. While countable income is less than total income (it equals all taxable income, some non-taxable income, and 1/2 of Social Security checks), these thresholds are still pretty low. And the bad news is, they aren't indexed to inflation, haven't changed for decades, and will likely remain unchanged in 2023. As a result, more seniors than ever will owe taxes on retirement benefits due to their incomes rising to keep pace with inflation even as the tax threshold stays the same.
- The early filing and delayed retirement credits system won't change: Another of Social Security's most important rules will remain the same. This rule relates to early filing penalties and delayed retirement credits. Currently, your benefits are reduced by 5/9 of 1% for each of the first 36 months you claim then prior to your designated full retirement age and are reduced by an additional 5/12 of 1% per month if you claim benefits more than 36 months early. This system will remain the same. Likewise, you can earn a delayed retirement credit equal to 2/3 of 1% per month for each month you delay benefits beyond FRA up to age 70. And that rule won't change, either. The good news is, the full retirement age is staying the same. It was gradually shifting later for anyone who was born after 1954. But for all those born in 1960 or after, FRA is age 67. That means all retirees who turned 62 last year and beyond will now have the same FRA.
It's important to understand both the rules that change -- and those that don't -- so you can be prepared for the impact they can have on the monthly payment you end up bringing home.
