What the Social Security 2023 Increase Means for You Now and Later
The Social Security Administration announced that there will be an 8.7% cost-of-living-adjustment (COLA) beginning January 2023. Overall, this means benefits will increase an average of $140 a month.
The COLA rate is determined by the consumer price index (CPI) which relies on the U.S. inflation rate. While many thought 2022 COLA increase (5.9%) was large, the 2023 increase of 8.7% is the largest since 1981. Here is a quick breakdown of how Social Security benefits will change: For the average Social Security recipient an extra $1752 will be seen yearly, increasing benefits on average from $1681 to $1827. The average couple receiving benefits will see a yearly increase of $2856.
However, this increase does not factor in taxes. The one who giveth will also taketh. Under current law, if you are a single taxpayer, you will be taxed 0% on your Social Security benefits if you have provisional income under $25,000. Your Social Security benefits can be taxed up to 50% if your provisional income is between $25,000-34,000; and up to 85% can be taxed if your provisional income is over $34,000.
For those married and filing jointly, provisional income less than $32,000 results in zero taxation on your Social Security benefits. Between $25,000-44,000 your benefits can be taxed up to 50%; and from provisional income over $44,000 up to 85% of your benefits can be taxed.
Today, the Social Security Administration reports that roughly half of Social Security beneficiaries pay taxes on their benefits. With the COLA increase of 8.7%, more could be paying taxes in 2023. And depending on which state you live in, you may be paying more tax at both the federal and state level when it comes to taxes on your Social Security benefits.
COLA increases are always giving long-term. Once you reach 62, the increases are automatically included into your benefits. Heedless of when you take them, the increases are cumulative meaning the next COLA increase is determined off the new “base” Social Security benefits. This means even for spousal, survivor, or divorce benefits, you will still receive the COLA increases no matter when you enroll.