6 Social Security Changes Taking Effect Today

For more than 80 years, Social Security has lived up to its name and provided some level of financial security for our country’s retirees. The program lifted about 22.5 million people out of poverty in 2020, including 16.1 million people age 65 and older, according to the Center on Budget and Policy Priorities.

But Social Security is not static. Many of its working parts are designed to change over time. As we welcome the new year, here are six Social Security changes that take effect today.

Image source: Getty Images.

1. Social Security checks are getting a historic boost

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

Social Security’s COLA program is a way to account for inflation that its beneficiaries have struggled with over the past year. Ideally, benefits should increase in line with the rate of inflation so that recipients (mainly senior citizens) do not lose their purchasing power. In 2023, beneficiaries will see an 8.7% increase in their Social Security checks.

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

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

2. The maximum monthly payment increases at full retirement age

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

Last year, the maximum monthly payment a retired worker could receive at full retirement age — the age at which eligible beneficiaries can receive 100% of their payments — was $3,345. But thanks to rising inflation, the maximum monthly benefit at full retirement age will increase by $282 to $3,627 in 2023. About 2% of retired workers take home this high level of benefit check each month.

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

  • A retiree must wait until full retirement age (usually age 66-67) to receive benefits.
  • Because the Social Security Administration (SSA) uses workers’ 35 highest-earning, inflation-adjusted years when calculating their monthly benefits at full retirement age, they will need to work at least 35 years.
  • They must reach the maximum taxable earnings in each of the 35 years used by the SSA to calculate the monthly benefit.

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

But it’s not all peaches and cream for the rich in 2023. If you’re a high-salaried employee, you could be on the hook for a bigger tax bill this year.

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

In 2022, all wages and salaries between $0.01 and $147,000 were subject to the payroll tax. But thanks to a historically large increase in the National Average Wage Index, the maximum taxable earnings limit will rise from $147,000 today to $160,200. For the self-employed, a $13,200 annual increase in the maximum taxable earnings limit could mean paying up to an extra $1,636.80 in payroll taxes this year.

A Social Security card sandwiched between lots of cash bonds.

Image source: Getty Images.

4. Adjusting to Social Security benefits just got a little more difficult

Despite what you may have heard or been told, Social Security is not a right you get just because you are a US citizen. On the contrary, you earn your own benefit by working. You’ll need to accumulate 40 lifetime work credits to qualify for retirement benefits or disability and survivor benefit coverage.

While this may sound like a daunting task, it’s actually easier than you might realize. Employees can earn a maximum of four credits each year, meaning they can qualify for retirement benefits for at least 10 years.

More importantly, the threshold of earned income to qualify for lifetime job loans is set quite low. Received a business loan for $1,510 from earned income last year. Therefore, $6,040 of earned income in 2022 would provide a worker with the full credit for the year.

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

5. Disability income limits are in motion

Social Security’s disability income limits represent another major change that officially went into effect today.

When most people think of Social Security, they rightly think of the more than 48 million retired workers and the 2.7 million spouses and children of those retirees who receive monthly benefits. But Social Security also plays a key role in supporting long-term disability. As of November, 8.88 million disabled workers received an average monthly Social Security check of $1,364.

Workers can only bring home their earned income to continue receiving Social Security disability benefits each month. For disabled workers who are not blind, benefits will end in 2022 for those earning above $1,350 a month. This monthly limit for blind disabled workers was set at $2,260 last year.

Turning the page to 2023, disabled workers who are not blind will be able to earn $1,470 a month without having their benefits stopped. Meanwhile, blind disabled workers will see their earnings threshold increase by $200 a month to $2,460.

6. Early filer catch limits increase

The sixth and final Social Security change that goes into effect today could affect retired workers who start receiving Social Security checks before reaching full retirement age.

Social Security encourages the patience of eligible beneficiaries and tends to penalize early claimants in various ways. One of these ways is the pension earnings test. The retirement earnings test allows the SSA to withhold some or all of Social Security benefits from early applicants if they have earned too much.

There are two very different levels of the pension earnings test. The first category refers to early claimants who will not reach full retirement age in 2023. Last year, the SSA could withhold benefits for every $2 of earned income above $19,560, or $1,630 a month. Starting today, that income limit rises to $21,240, or $1,770 per month.

The second category is for early adopters will be reaching full retirement age sometime this year. In 2022, the SSA will withhold $1 in benefits for every $3 of earned income above $51,960 ($4,330 per month) in the months before full retirement age. Starting today, that income limit increases to $56,520, or $4,710 per month.

One important thing to note here is that the pension earnings test no longer applies once you reach your full pension age, regardless of when you start receiving benefits. After age 66 or 67, depending on your full retirement age, the SSA won’t be able to withhold a penny of what you owe, no matter how much you earn.

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