Inflation is not a factor that COLA (Cost of Living Adjustment) was created by the United States. Although it might have the opposite effect next fiscal year, this government initiative is ideal for exactly that purpose. We have a problem when we consider that pensions rise year-on-year, but the tax threshold doesn’t. It is possible for a large percentage of pensioners to start paying tax from next year, even if they have not paid any before.
This means that some Social Security pensioners may lose their purchasing power due to the COLA by 2023. This could be true, even though it might seem contradictory. This situation will be made worse by the supposed $200 average increase. Are you on the negative side?
Social Security gets more taxes
Many Social Security beneficiaries are now wondering if their subsidy may be at risk because of the complex situation. It is difficult to determine the exact amount of the increase as it stands today. It is impossible to predict whether the tax will be due in 2023. It’s always a good idea to save money and take action. This advice is applicable in all economic situations.
If you have a Social Security increase of $200 and it exceeds the tax limit, then you might have to pay more. You will therefore have less money at the end than you had in 2022. If you are unsure, you can contact a specialist attorney to help you understand the consequences of the COLA increase on your taxes.
A 10.5% COLA hike would increase the current average retiree benefit of $1,668 by $175.10. That could have negative tax consequences unless lawmakers change the income thresholds for Social Security beneficiaries.
The amount of Social Security benefits exempted from tax hasn’t changed since 1984, the Washington Times reported. Under the current structure, retirees owe tax on benefits if their income 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.
Tens of thousands of retirees who have not paid taxes on their benefits in the past might have to start doing so in 2023, according to Mary Johnson, the Senior Citizen League’s Social Security and Medicare policy analyst.
“Because the income thresholds are not adjusted like ordinary tax brackets, these once-in-a-lifetime COLA increases could lead to permanently higher taxes for many retirees,” Johnson said in an email statement to GOBankingRates.
Higher incomes also can lead to a loss of income-adjusted Medicare health and prescription drug benefits for low-income beneficiaries, as well as reduced Supplemental Nutrition Assistance Program (SNAP) benefits.
We are supposed to look after the elderly and those who are disabled. Retirees have paid their taxes and now the Cost of Living Adjustment is managing to try to screw them out of their money. The people who depend on Social Security barely make enough to pay their monthly bills and buy the necessities, and I can’t fathom the thought of that being taken away from them. Lawmakers must change the income threshold for Social Security beneficiaries.