Social Security COLA Increases Could Cost Seniors Money – Here’s How
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This year’s soaring inflation rate likely means the 2023 cost-of-living adjustment (COLA) for Social Security recipients will be the highest in decades, with a seniors’ advocacy group estimating that the 2023 COLA could exceed 10%. This should be good news for retirees struggling to make ends meet, but it could be bad news for others.
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The reason for this is that a large increase in COLA would push some Social Security recipients into a higher tax bracket, thereby increasing their tax liability.
As GOBankingRates reported last week, the non-partisan Senior League estimates the COLA for 2023 will be 10.5%, based on inflation figures showing that the Consumer Price Index in June grew 9.1% year over year.
A 10.5% increase in COLA would add $175.10 to the current average retiree benefit of $1,668. This could have negative tax consequences unless lawmakers change the income thresholds for Social Security recipients.
The amount of tax-exempt Social Security benefits has not changed since 1984, The Washington Times reported. Under the current structure, retirees must pay tax on benefits if their earnings and payments total more than $25,000 for a single person or $32,000 for a married couple. Estimates from the Congressional Budget Office show that the share of Social Security benefits that must be taxed will increase by 10% this year and another 10% in 2023.
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Tens of thousands of retirees who haven’t paid taxes on their benefits in the past may have to start doing so in 2023, according to Senior Citizen Social Security and Medicare policy analyst Mary Johnson. League.
“Because income thresholds are not adjusted like regular tax brackets, these one-time COLA increases could lead to permanent tax increases for many retirees,” Johnson said in an email to GOBankingRates.
Higher incomes may also result in the loss of income-adjusted Medicare health and prescription drug benefits for low-income recipients, as well as reduced Supplemental Nutrition Assistance Program (SNAP) benefits.
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