What Seniors Need to Know About Social Security and Medicare for 2023

As of September 2022, there were over 70 million Social Security beneficiaries, of which more than 52 million were seniors age 65 and older. Benefits for these individuals will change in 2023 and the changes have tax implications. Here’s what is new for 2023 and what stays the same.

Increase in monthly benefits

Monthly benefits in 2023 are increasing by 8.7%. This means the average monthly benefit for all retirees will be $1,847 (up by more than $140 per month starting in January). The COLA for 2022 was 5.9%; in 2021 it was 1.3%.

Those who attain full retirement age but delay collecting benefits can continue to receive a delayed retirement credit (DRC) until age 70 of 2/3 of 1% for each month for those born after January 1, 1943. No additional credit applies after this age.

Increase in earnings limit for certain SS beneficiaries

Social Security recipients, other than those who have attained full retirement age, may lose some of their benefits if they have earned income over a maximum amount. For those under full retirement age, there is a one-dollar reduction for every two dollars of earnings in 2023 over $1,770 a month (compared with the threshold in 2022 of $1,630 a month). If a beneficiary attains full retirement age in 23023, the threshold is $4,710 per month (up from $4,330 per month in 2022).

Changes in Medicare

The standard monthly premium for Part B coverage in 2023 is going down. The standard monthly premium for Medicare Part B enrollees will be $164.90 in 2023, down from $170.10 in 2022. In the past, a “hold harmless” provision acted to protect many beneficiaries from an increase in the Part B premium. But because the premium is going down, the provision is unnecessary this year.

About 7% of all Medicare beneficiaries are considered “high income” and are subject to an additional premium for Part B and an additional payment for Part D. The 2023 Part B total premium for high-income beneficiaries may be as great as $560.50, depending on modified adjusted gross income (MAGI) in 2021. The MAGI brackets have been increased so that only those with MAGI over $97,000 ($194,000 for joint filers) in 2021 are subject to the added Medicare cost in 2023 (compared with an MAGI threshold in 2022 of MAGI in 2020 of $91,000 ($182,000 for joint filers). The same MAGI brackets for determining the Part B surcharge apply as well to the Part D additional cost.

Taxation of Social Security benefits

There are no changes in how Social Security benefits are taxed for federal income tax purposes. Social Security benefits may be completely tax free or included in income at 50% or 85%. It depends on your filing status, the amount of benefits, and the amount of your other income, including tax-exempt interest. Any lump-sum death benefit paid by the Social Security Administration is always tax free.

However, due to the increase in benefits, some individuals will see their benefits or a great percentage of benefits subject to tax than in the past. What’s more, the higher income in 2023 that results from increased inclusion of benefits in income impacts filing requirements, eligibility for tax breaks, and whether there will be a Medicare surcharge in 2025.

Conclusion

Seniors who are still working continue to pay Social Security and Medicare taxes—through FICA if employed or self-employment tax if self-employed. The tax rates for Social Security (6.2%) and Medicare (1.45%) are unchanged for 2023. The wage base for the Social Security tax increases to $160,200. Seniors who are high income taxpayers also pay an additional 0.9% Medicare tax; it will be unchanged for 2023.

Sources:  https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/; https://www.cms.gov/newsroom/fact-sheets/2023-medicare-parts-b-premiums-and-deductibles-2023-medicare-part-d-income-related-monthly