Social Security checks are set to get a significant boost next month as an 8.7% cost-of-living adjustment (COLA) kicks in for 2023. This will add $147 to the average senior’s monthly check, and some may receive much more. But others may see smaller benefits than they expect in 2023.
We will discuss three reasons below. Some of these may be familiar to seniors who already claim Social Security, while others may come as a surprise to current beneficiaries.
1. Medicare Part B premiums come out of your checks
For adults age 65 and older who are on Medicare, Medicare Part B premiums are automatically deducted from their paychecks each month. That’s currently $170.10 a month for most people, but will drop to $164.90 in 2023. Some high earners pay more than this.
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But some argue that this automation is a benefit rather than a disadvantage. If the government didn’t take your Medicare premiums out of your Social Security checks, you’d get a bill for them each month. So you have one less monthly payment to worry about.
2. The federal government can garnish your checks
For most people, only Medicare Part B payments are withheld from their Social Security checks, while others have even more taken out if they default on some of their financial obligations. Those who owe back taxes, child support, or alimony will have some of their checks garnished until those debts are paid off.
But you won’t lose your entire check, no matter how much you owe. The government will only withhold up to 15% of each check for unpaid federal taxes. The most you can lose for unpaid child support or alimony is 65% of your paycheck. And to pay that much, you must be more than 12 weeks behind in payments and not support a spouse or child other than the one you owe child support or alimony to.
It can be difficult to argue with the IRS about unpaid taxes, but if you don’t think you should owe back child support or alimony, you can always appeal to the court that issued the order. However, if the decision is overturned, you will continue to lose money from your Social Security checks each month.
3. You may owe taxes on your benefits
The IRS has taxed Social Security benefits for seniors who earn a certain amount of income since 1984, but the tax threshold for the benefits has not changed over the years. This means that over time, more and more seniors have had to pay some of their benefits back to the government. And we can expect this trend to continue in 2023 as all benefits are expected to increase due to the COLA.
The formula for taxing Social Security benefits is a bit beyond the scope of this article. But basically, if your temporary income — your adjusted gross income plus the untaxed interest you earned and half of your annual Social Security benefits — exceeds $25,000 for a single adult or $32,000 for a married couple, you’ll owe something :
You may also owe your state government some of your Social Security benefits. Currently, 12 states tax some of their seniors’ Social Security benefits. But each has its own rules for determining who owes these taxes and how much to pay. Seniors who live in one of these states should contact their state tax office for more information.
None of this is meant to scare you. But it’s important to be aware of where else your checks might be going so you can budget accordingly. If none of the above three situations apply to you, you can spend your entire allowance for free. But if you think you might lose money on one or more of the above, you’ll need to cut back on your spending or use more of your personal savings to make up the difference.
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