Important Changes to Social Security in 2023
Important Changes to Social Security in 2023
When Social Security was created in 1939, it was intended to provide survivors insurance to families of deceased workers.
In the intervening 83 years, a lot has changed.
Social Security now provides disability insurance, Medicare, and Supplemental Security Income, in addition to survivors insurance, to more than 70 million Americans.
Below is a summary of 3 significant changes to the program in 2023.
Employers and Self-Employed Social Security Tax
Maximum earnings (W2 and self-employed net income) subject to Social Security tax on employees, also commonly referred to the Social Security wage base, will increase from $147,000 in 2022 to $160,200 for 2023. This is an increase of $13,200. The taxable wage base is the maximum amount of earned income that employees and/or self-employed (net income) individuals must pay Social Security taxes on.
Here are the 2023 employer withholding rates:
- 6.2% Social Security tax on the first $160,200 of employee wages (maximum tax is $9,932.40) plus.
- 1.45% Medicare tax on the first $200,000 of employee wages, plus.
- 2.35% Medicare tax (regular 1.45% + 0.9% additional Medicare tax) on all employee wages more than $200,000
Cost of Living Adjustments (COLA) for Social Security and Supplemental Security Income (SSI) Beneficiaries
Since 1975, the Social Security Administration has increased general benefits based upon the increases in the cost of living, by using the Consumer Price Index. SSI is a program designed to help aged, blind, and disabled people who have little or no income. In the largest increase since 1981. the SSA inflation adjustment for benefits for 2023 will be 8.7%. Both SSA and SSI beneficiaries will receive a COLA notice in December, which will contain the exact amounts of their new benefits. The notice can be obtained online in the SSA Message Center of your My Social Security account.
Here is a link to create an account online (https://www.ssa.gov/myaccount/).
Higher Earnings Limit for Workers Who Receive SSA Retirement Benefits
Per the SSA, you may be able to continue working and still receive Social Security (SS) retirement or survivors benefits. However, as indicated below, the benefits could be reduced, if the income earned exceed certain amounts. Also, different rules apply to SS recipients who are disabled and who continue to work.
Based on the information below, the determination of how much you can earn and still receive Social Security benefits depends upon your “full retirement age”, which is explained in this SSA link Full Retirement Age. Also note that the base earning amounts listed below represent increased amounts for 2023.
Key points:- If you receive SS benefits while working, and are full retirement age or older, you may keep all your benefits received, no matter how much you earn.
- If you receive SS benefits while working and haven’t reached your full retirement age by the end of the year, your benefits are reduced by $1 for every $2 earned above $21,240.
- If you receive SS benefits while working, and you reach your full retirement age by the end of the year, your benefits are reduced by $1 for every $3 earned above $56,250. Note that the limit applies only to earnings for months prior to attaining full retirement age.
Finally, in a non-financial policy announcement, on October 19, the SSA announced that people will now be allowed to select the sex that best aligns with their gender identity in records.
Conclusion
While the SSA generally annually makes inflation adjustments to benefits and other parameters, as indicated above, the 8.7% increase to benefits for 2023 is the largest increase since 1981 and should be good news for Social Security recipients.
If you have questions regarding your Social Security status, please contact your Herbein + Company, Inc. tax consultant through the form below.
Article contributed by Denise A. Neason
