2023 Social Security Cost-Of-Living Increase Highest In 40 Years
The Social Security Administration recently announced that Social Security beneficiaries will get an 8.7% increase to their benefits in 2023.
Thanks to the current high inflation this is the highest increase in 40 years, and the second year in a row that there’s been a substantial increase, 5.9% in 2022 and now 8.7% for 2023. The table below reflects the COLA benefits going back to 1976. As you will note, the COLA increases have been relatively stable in recent years except for 2008.
The Social Security Administration will mail notices to Social Security beneficiaries during the month of December letting them know what their 2023 benefit will be. The COLA adjustment will boost retirees’ monthly payments by an average of $146 to an estimated average of $1,827 per month for 2023.
The COLA increases are about keeping the roughly 70 million Social Security recipients up with inflation and not really providing any increase in buying power. The 8.7% increase will be included in the January 2023 benefits.
Medicare Premiums – The Centers for Medicare and Medicaid Services also recently announced the 2023 Medicare premiums. Seniors will also see a rare but small drop in the Medicare premium rates. Both Medicare B (Medicare premiums) and Medicare D (Medicare prescription drug coverage) are treated as medical insurance premiums that may be tax deductible by a taxpayer who itemizes their deductions and for some self-employed individuals. Medicare premiums are not a fixed amount for all retirees. The amounts paid or withheld from the individual’s Social Security income is based on the taxpayer’s modified adjusted gross income (MAGI) from the two years previous. The following tables reflect the 2023 Medicare Part B monthly premiums and the Medicare Part D monthly supplement based upon a taxpayer’s 2021 MAGI. To determine the amount that will be withheld from your monthly Social Security benefit add together the Part B and D amounts.
*These amounts are in addition to any drug plan premiums. 1 Premium amount is for each spouse enrolled in Medicare B 2 Supplemental amount is for each spouse enrolled in Medicare D The modified AGI used when determining amounts from the tables is the Federal AGI plus:
Tax-exempt interest income;
United States savings bonds interest used to pay higher education tuition and fees if the interest was excluded from income on Form 8815;
Excluded foreign earned income and housing costs;
Income derived from sources within Guam, American Samoa, or the Northern Mariana Islands; and
Income from sources within Puerto Rico.
There is a tax quirk that can unknowingly increase the MAGI. Gambling winnings, even if there’s a net loss for the year, can increase the cost of health insurance premiums for individuals enrolled in Medicare coverage.
The reason for that is gambling losses are an itemized deduction and not netted against gambling winning. Thus, even though a taxpayer itemizes deductions and deducts their gambling losses, the full amount of the gambling winnings is included in their AGI, and as discussed above, their MAGI is used to determine the cost of the Medicare insurance.
An example: an individual who recreationally gambles and makes $80,000 in bets during the year and has $75,000 of losses will an see an $80,000 increase in their MAGI even though they only netted $5,000 in winnings.
The Future of Social Security - There is also some concerning news that goes along with the Social Security benefits increase. The increase will have an adverse impact on Social Security’s already shaky finances. The funds that pay the benefits to retirees, survivors and the disabled will be exhausted by 2035 and only Medicare taxes collected from workers will be available to pay Social Security benefits. Thus there will not be enough funds to pay the full benefits going forward unless Congress intervenes and tackles the long-term funding shortfall.
If you have tax questions related to Social Security benefits, deducting your Medicare premiums or how you can save for retirement with tax beneficial retirement plans, please give this office a call.