The rising rates of inflation that are sweeping the country over the summer are expected to increase the 2023 Social Security cost of living adjustment, A.K.A. “COLA.” The percentage increase (8.7%) is the largest one in 40 years, which to the naked eye can be seen as a great thing for struggling retirees. However, when something seems too good to be true, it usually is.
The Bad News
This generous bump in payment could push some Social Security earners into higher tax brackets, leading to about half of all households paying taxes on their benefits. “The taxes are burdensome,” said Senior Citizens League’s Social Security and Medicare policy analyst Mary Johnson. “It’s really vital income being taxed away. It can be burdensome with serious repercussions on how people access what they need – their housing and food resources, which affects their health.”
If you are filing your taxes individually and your income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits, and that number can rise to 85% if you exceed the $34,000 threshold. Couples filing jointly can expect 50% of the benefit to go to taxes if earning in the $32,000 to $44,000 range and 85% if they earn over $44,000.
When Will This Be Announced?
The Social Security Administration Will Announce the COLA adjustment in October for 2023. The expected range of adjustment will raise the Social Security retirement benefit an extra $144.10 on top of the current $1,656. This is according to the Senior Citizens League, a group that represents seniors.
Wrap Up
On the outside, this can seem like a massive gain, and it will be for some retirees receiving Social Security benefits. But for others it may bump them into a new tax bracket, forcing them to pay a lot more taxes than they previously were. If you are concerned about these changes, contact a trusted financial advisor.