COLA 2023: Is there a negative side to the historic adjustment increase?
While benefits are likely to rise with inflation the threshold when tax is levied remains the same meaning more pensioners will be taxed.
The cost of living adjustment (COLA) for 2023 is set to be announced imminently. If the COLA was determined by the numbers from July and August, seniors would see an 8.4 percent boost in their payment amounts.
With inflation currently at 8.3 percent year-on-year, this increase would be a touch ahead of inflation. While good on paper, inflation has been extremely volatile and there are no guarantees it will drop next year.
Benefits recipients will be happy that their benefits will be at the rate of inflation. However, a problem recipients could face is the tax that comes with greater benefits. The thresholds for when Social Security benefits are taxed have never been adjusted for inflation, meaning any increase in benefits will mean more pensioners will have to pay taxes on their money.
At present those with a combined income under $25,000 ($32,000 for married couples) a year will not have to pay taxes on their Social Security benefits. With benefits expected to increase by over 8 percent in 2023 the average payment will be around $1,758. This value would put the yearly average up to over $21,000, inching the average recipient closer to that tax threshold.
For those with a combined income between $25,000 and $34,000 ($32,000 to $44,000 for married couples) a year, the Social Security Administration may be able to levy a tax upon fifty percent of your benefits. Finally, with an income over $34,000 ($44,000 for married couples), one can be taxed up to eighty-five percent of their Social Security benefits. Married couples who file separately will likely pay taxes on their benefits.
A calculator from the Internal Revenue Service (IRS) can help retired workers determine how much, if any, of their Social Security benefits is taxable.