Social Security Changes for 2023

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By Sandra Block From Kiplinger’s Personal Finance

Question: I recently retired at 63 and claimed Social Security. But I plan on working part-time to earn some extra money. Would that reduce my Social Security check?

Answer: If you file for Social Security before you reach full retirement age (66 to 67 for most workers) and earn income from a job, Social Security applies the “earnings test” to your income and will withhold a portion of your benefits once your earnings exceed a certain threshold.

In 2023, you can earn up to $21,240 before Social Security will withhold $1 in benefits for every $2 you earn over that amount. If you reach full retirement age in 2023, you can earn up to $56,520 before Social Security will withhold $1 in benefits for every $3 you earn over the limit. In the month you reach full retirement age, the earnings test disappears.

And even if you hit the new earnings test threshold, the benefits aren’t lost forever. Once you hit full retirement age, your monthly benefit amount is adjusted upward to account for forfeited benefits.

Question: Is it true that workers will pay more in Social Security taxes in 2023?

Answer: Yes, if they’re among those who earn a higher income. Most employees pay 6.2 percent in Social Security payroll taxes, while employers pay 6.2 percent, for a total payroll tax of 12.4 percent. However, withholding for payroll taxes ends once your income exceeds a certain threshold, which is adjusted annually for inflation.

In 2023, workers will pay Social Security taxes on up to $160,200, up nearly 9 percent from $147,000 in 2022. If you earn at least $160,200 in 2023, you’ll pay $818 more in Social Security taxes than you would have paid if the wage base remained at $147,000.

Question: Will the big cost-of-living adjustment for Social Security beneficiaries just make the program’s solvency problems worse?

Answer: The 8.7 percent cost of living increase for 2023 has exacerbated concerns about Social Security’s financial stability.

In June, the Social Security’s board of trustees projected that the program’s trust fund will be depleted by 2035 unless lawmakers act to close the projected shortfall. As a result of the higher payouts in 2023, the Committee for a Responsible Federal Budget, a non-profit research organization, projects that the trust fund will be depleted a year earlier than the trustees’ projection.

Were it not for the hike in the payroll cap, which generates additional tax revenue for the program, the fund would run out of money even earlier, says Maya MacGuineas, president of the organization. “The problem isn’t the COLA,” she says. “The problem is that we have promised more benefits than we take in [via] taxes to pay for the program, and we have known this for decades.”

If the trust fund is depleted, Social Security won’t disappear, but the program will only have enough money to pay an estimated 77 percent of promised benefits. But given the popularity of Social Security—and the fact that about a quarter of recipients rely on benefits for more than 90 percent of their income—Congress will likely intervene before that happens.

(Sandra Block is a senior editor at Kiplinger’s Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.)

©2022 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

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