Social Security recipients likely already know that their benefits get a bump almost every year to counteract the effect of inflation. But that cost-of-living adjustment is just one of several annual tweaks to the Social Security system.
These increases affect folks who are already retired as well as those who have yet to retire.
Following is a look at what will change for 2023.
1. The benefit increase
Social Security recipients will see their monthly payments rise by 8.7% in 2023, as we detailed in “Social Security Payments to Jump in 2023.”
That cost-of-living adjustment (COLA) translates to an extra $146 a month, based on the average Social Security payment for retired workers.
Not all retirees will see that much extra Social Security income in 2023, however, because the Medicare Part B premium is withheld from some retirees’ Social Security payments.
For some folks, the extra income may also be offset by higher taxes.
2. The earnings limit for working retirees
If you claim Social Security retirement benefits before reaching your full retirement age and also continue working, the Social Security Administration will withhold some of your benefits if your income exceeds what’s known as the earnings limit. (There is no penalty for earnings made while working after you reach full retirement age.)
This earnings limit generally increases annually as the national average wage index increases. For 2023, it will rise:
- From $19,560 to $21,240 if you will reach full retirement age after 2023
- From $51,960 to $56,520 if you will reach full retirement age in 2023
The Social Security Administration notes, however, that you do not lose any benefits that are withheld due to your income exceeding the applicable earnings limit. Once you reach your full retirement age, your monthly benefit is increased permanently to account for months in which benefits were withheld.
3. The tax cap on workers’ income
Here’s another annual adjustment based on the increase in average wages: The maximum amount of a worker’s income that is subject to Social Security payroll taxes will rise from $147,000 in 2022 to $160,200 in 2023.
So, if you’re fortunate enough to earn more than $160,200 in 2023, you won’t owe Social Security payroll taxes on every dollar you earn.
The Social Security payroll tax rate itself will remain the same in 2024: 6.2% for employees (employers pay another 6.2% on their employees’ behalf) and 12.4% for the self-employed.
4. The earnings required for one credit
Not everyone is eligible for retirement benefits. As we explain in “6 Groups Who Cannot Rely on Social Security Benefits“:
“To receive Social Security retirement benefits, most people need to accumulate at least 40 ‘credits’ during their working lifetime, according to the U.S. Social Security Administration (SSA). Currently, you can earn up to four credits per year if you work and pay Social Security taxes.”
The earnings required for you to receive one Social Security credit, also known as one-quarter of coverage, will rise from $1,510 in 2022 to $1,640 in 2023.
5. The maximum benefit
There is a limit to how much money a retiree can receive in monthly benefits. It’s known as the maximum Social Security benefit.
Your maximum Social Security benefit depends on the age at which you retire. The maximum benefit for someone who retires at their full retirement age will rise from $3,345 per month in 2022 to $3,627 per month in 2023.