Each year, the Social Security Administration introduces changes to the United States benefit payment system. These changes are always for the benefit of retirees. Most of these changes are directly related to benefits. Still, there can be changes that are seemingly positive and end up being the opposite. This is one of the big changes, as the COLA for 2023 is the largest in decades, something that is not as good as it would first appear.
Any changes related to benefits and subsidies for retirees and the disabled are always important. Keep in mind that a large portion of retirees have Social Security as their only source of income. For that reason, all changes related to this sector are of vital importance to many. Fortunately, the Social Security system continues to function the same.
Therefore, do not expect changes in the payment system as such. We should not worry about this area, as payments will continue to be on the second, third and fourth Wednesday of the month. On the other hand, the changes do have an impact on the amount retirees receive and the taxes they pay. For that reason, it is so important to keep these changes in mind so as not to lose sight of any possible loss of buying power.
A huge COLA for Social Security
The main change in the coming year 2023 is the COLA increase. There is a record increase in Social Security pensions of 8.7%. This means that many retirees will be counting on a large amount of extra money for next year. This change kicks in from January 2023, so benefits for October, November and December still remain at the previous amount.
The average benefit will increase by about $140 per month, so the standard Social Security check will go to about $1827 instead of $1666. This change may bring something negative, and that is that the tax payment threshold has not changed.
With this increase in the Social Security average, the intention is that retirees will not lose purchasing power. The problem is that this objective may be compromised for many reasons, such as tax payments.
More taxes for retirees
What would happen if the tax threshold does not move but benefits increase? Well, many pensioners who did not pay taxes before will now have to do so. This will happen to many Social Security beneficiaries. In addition, the increase is not a one-year thing, but becomes effective every year.
But as of today, taxes remain unchanged. By not increasing the tax threshold, retirees who 10 years ago received little are now over the taxable limit. As a result, many retirees may have to make payments that they did not pay before. To avoid problems, consult a specialist lawyer or accountant to help you calculate how much tax you will have to pay starting next year.
This is one of the big complaints Social Security retirees are making. Because of this COLA increase, some benefits will have to pay taxes that they did not pay before. Therefore, this increase in retirement benefits could ultimately be a reduction in some cases.