We're over a month into the new year, and seniors on Social Security should have received at least one benefit check so far in 2023. The average benefit has jumped $147 from last year, thanks to a record 8.7% cost-of-living adjustment (COLA). This extra money is intended to help beneficiaries maintain their current standard of living in spite of the high inflation we've faced. But it may not have that effect for everyone.
There are a few little-known rules that could prevent seniors from reaping the full rewards of their new, larger Social Security checks. Here are two of the most significant.
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1. Some seniors could owe taxes on their benefits
The federal government taxes the Social Security benefits of some seniors if their provisional income -- adjusted gross income (AGI), plus any nontaxable interest, and half your annual Social Security benefit -- exceeds certain thresholds for their tax filing status. The following table breaks down how much of your benefit you could owe taxes on:
|
Percentage of your Social Security benefits subject to tax |
Individual filers |
Married couples filing jointly |
|---|---|---|
|
0% |
Provisional income up to $25,000 |
Provisional income up to $32,000 |
|
Up to 50% |
Provisional income between $25,000 and $34,000 |
Provisional income between $32,000 and $44,000 |
|
Up to 85% |
Provisional income greater than $34,000 |
Provisional income greater than $44,000 |
Data source: Social Security Administration.
To be clear, the percentages listed above represent the portion of your annual Social Security benefit that the government could tax. It doesn't indicate the tax rate you'll pay. That depends on which tax bracket you fall into. These brackets range from 10% to 37%, but most people fall toward the lower end.
These taxes have been around for decades, but with average benefit checks rising, it's likely that more seniors will owe them in 2023 than in previous years. This could effectively reduce their take-home benefit, leaving them with less money to cover their expenses than they had in 2022.
It's also worth noting that some states tax Social Security benefits as well. If you live in one of these, you could lose even more of your checks each year. Check with your state's department of taxation to learn how it handles Social Security benefit taxation.
2. Others could have a harder time getting SNAP benefits
Supplemental Nutrition Assistance Program (SNAP) benefits help low-income families, including seniors, afford groceries. But eligibility for this program depends on your monthly income, including your Social Security benefits.
A larger Social Security benefit could raise your monthly income, and that could affect how much, if anything, you receive from SNAP. If you lose SNAP benefit eligibility, you may have to use more of your Social Security checks to cover your food costs, limiting the amount you have available for your other expenses. If you have any questions about your SNAP benefit eligibility, reach out to your state agency and ask.
What to do if your Social Security 'raise' hurts you
Unfortunately, there's little you can do about the laws above. You may be able to reduce your likelihood of owing Social Security benefit taxes by limiting your annual withdrawals from your retirement account or relying more upon Roth savings as you near the taxation thresholds listed above. But beyond that, you may have to make changes to your budget.
You could try limiting your spending, but if that's not enough, you might have to look for alternative ways to increase your income, like working a side hustle. This could affect your eligibility for government benefits, like SNAP, and it could still leave you at risk of Social Security benefit taxes. But increasing your annual income could make it easier for you to cover your other expenses.
