Although Social Security has been around for many decades, the program is typically subject to certain changes each year. And these changes can be mixed.
Now let’s talk about some good news first. In 2023, seniors who are subject to social security contributions will be able to enjoy their biggest increase in decades — an 8.7% cost of living adjustment (COLA). The hope is that such a large increase will help seniors regain some spending power in the face of inflation and avoid some of the problems they may have faced this year.
Another positive social insurance Change coming down the pike? That Income Test Limit rising. This means early Social Security claimants who choose to keep working have an opportunity to make more money without it affecting their benefits.
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But while it’s easy to argue that Social Security is changing for the better in 2023, there are some changes that might not work so well. Here are a few that might have a negative impact on you.
1. A higher wage cap
The main source of income for social security is income tax. But employees don’t necessarily pay these taxes on all of their income.
Each year a wage cap is introduced that determines how much income is taxed. Currently, the wage cap is $147,000, meaning earnings above that point are not subject to Social Security tax. (Any income in excess of this is also not taken into account when calculating the monthly old-age pension.)
Next year the wage ceiling will rise – significantly. Social Security taxes apply to earnings up to $160,200. That’s a big jump from this year, and it means higher earners will lose more of their money.
On the one hand, of course, it might be hard to feel bad for people whose paychecks are generous enough to be affected by this change. But in some parts of the country, $160,200 isn’t a ton of money — especially for people with multiple dependents. All in all, this change will not go over well with many people.
2. A higher income requirement to purchase labor points
Social Security does not automatically pay seniors benefits when they reach a certain age. To qualify for benefits, you must earn 40 work points in your lifetime, up to a maximum of four points per year.
The value of a working credit may change over time. Right now, it takes $1,510 in earnings to snag a single work loan. In 2023, it will take $1,640 to get a work loan.
This change should not pose a problem for full-time employees. However, part-time workers may have to increase their hours or fight for higher wages if they want to ensure they get the maximum number of credits in 2023.
Watch out for changes in Social Security
As the rules surrounding social security evolve, it may or may not work to people’s advantage. Once a year, keep an eye out for changes to Social Security. Even if you’re not old enough to start receiving benefits, you could still end up being very badly affected.
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