We’re more than a month into the new year, and seniors on Social Security should have received at least one benefit check so far in 2023. The average benefit jumped $147 from the previous year. last year, thanks to a record cost of living of 8.7%. adjustment (COLA). This additional money is intended to help recipients maintain their current standard of living despite the high inflation we have faced. But it may not have that effect for everyone.
There are a few little-known rules that could prevent seniors from reaping the full rewards of their new, larger Social Security checks. Here are two of the most significant.
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1. Some seniors may have to pay taxes on their benefits
The federal government taxes some seniors’ Social Security benefits if their provisional income — adjusted gross income (AGI), plus any non-taxable interest, and half of your annual Social Security benefits – exceed certain thresholds for their tax status. The following table shows the amount of your benefit on which you may owe tax:
|
Percentage of your social security benefits subject to tax |
Individual registrants |
Married couples file jointly |
|---|---|---|
|
0% |
Provisional income up to $25,000 |
Provisional income up to $32,000 |
|
Up to 50% |
Provisional income between $25,000 and $34,000 |
Provisional income between $32,000 and $44,000 |
|
Up to 85% |
Provisional income over $34,000 |
Provisional income over $44,000 |
Data source: Social Security Administration.
To be clear, the percentages shown above represent the portion of your annual income Social security benefit that the government could tax. It does not indicate the tax rate you will pay. It depends on the tax bracket you are in. These ranges range from 10% to 37%, but most people fall into the lower range.
These taxes have been around for decades, but with the average increase in benefit checks, it’s likely that more seniors will owe them in 2023 than in previous years. This could effectively reduce their bottom line, leaving them with less money to cover expenses than in 2022.
It should also be noted that some states tax social security benefits Also. If you live in one of them, you could lose even more of your checks every year. Check with your state’s tax department to find out how it handles the taxation of Social Security benefits.
2. Others might have a harder time getting SNAP benefits
Supplemental Nutrition Assistance Program (SNAP) benefits help low-income families, including seniors, pay for groceries. But eligibility for this program depends on your monthly income, including your social security benefits.
A larger Social Security benefit could increase your monthly income, which could affect the amount, if any, you receive from SNAP. If you lose eligibility for SNAP benefits, you may have to use more of your Social Security checks to cover your food costs, which will limit the amount you have available for your other expenses. If you have questions about your eligibility for SNAP benefits, contact your state agency and ask.
What to do if your Social Security “increase” is hurting you
Unfortunately, there is not much you can do about the above laws. You may be able to reduce your likelihood of owing taxes on Social Security benefits by limiting your annual withdrawals from your retirement account or relying more on Roth Savings as you approach the tax thresholds shown above. But beyond that, you may need to make changes to your budget.
You can try to limit your expenses, but if that’s not enough, you may need to look for other ways to increase your income, such as working on the side. This could affect your eligibility for government benefits, like SNAP, and it could still expose you to the risk of Social Security benefit taxes. But increasing your annual income might make it easier to cover your other expenses.