By now you have probably heard that Social Security Income benefits are scheduled to increase by 8.70% in 2023. According to the Social Security Administration, the average monthly Social Security benefit will increase from $1,681 to $1,827.
Below are some other items to be aware of.
The maximum monthly Social Security benefit at Full Retirement Age has increased from $3,345/month to $3,627/month, an increase of 8.43%.
A Social Security recipient under Full Retirement Age will be able to earn $21,240 a year ($1,770/month) without impacting their benefits. This is up from $19,560/year ($1,630 per month) in 2022. Social Security benefits will be reduced by $1 for every $2 earned over that limit.
The 12.4% Social Security tax on employees/employers is now assessed against wages up to $160,200, which was previously $147,000. This is a tax increase of $1,636.80 for someone earning at least $160,200 per year (employers pay half and employees pay half). The Social Security wage base has increased significantly from the $106,800 it was in 2011.
What’s interesting is that at this point it does not appear they have changed the income limits for the extent to which Social Security is subject to taxation. If you file an individual return and have “combined income” between $25k – $34k, you may have to pay income tax on up to 50% of your benefit. With “combined income” over $34k, up to 85% of your benefit may be subject to taxation. These ranges for married filers are $32k – $44k, and over $44k.
Medicare Part B is actually declining from the current $170.10 per month to $164.90 per month. The Part B deductible is also dropping about $7.
The Medicare Parts B and D Income-Related Monthly Adjustment Amount (IRMAA) brackets have increased. This is the modified adjusted gross income someone can have before being exposed to surcharges. The 2023 brackets are below and based on one’s 2021 tax return:
These new brackets and the projected sunset of the 2018 tax law in 2026 present further opportunities to consider Roth IRA conversions.
The standard deduction is increasing from $25,900 to $27,700 for married couples, from $12,950 to $13,850 for single filers, and now $20,800 if filing head of household.
The Qualified Business Income Deduction phase out range will be $364,200 – $464,200 for married filing joint filers.
The federal estate tax exemption will increase to $12.92 million per person, meaning you could have nearly a $26 million net worth as a married couple without being exposed to the federal estate tax.
The 0% long-term capital gains rate now applies to married couples with taxable income of $89,250 or less.
The annual gift tax exclusion amount increases to $17k per person in 2023.
No update yet on new IRA and 401k deferral limits, but increases are expected.
Tax brackets have been adjusted for inflation as well. Below are the new brackets for married couples:
Here are the new brackets for individuals filing as single:
Disclosures: This article is for informational purposes only and should not be considered a recommendation. Information contained in this article is obtained from third party resources that Meredith Wealth Planning deems to be reliable. Consult with a tax professional or your personal financial advisor before implementing any tax strategies.
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