Because of the past few years’ skyrocketing inflation rates, those who draw Social Security are in line to receive a cost-of-living adjustment in 2023. The increase is estimated to be approximately 10.5 percent. Any tax attorney in San Jose would probably agree that it is a record high adjustment, although it remains to be seen exactly how much the increase will ultimately be.
The Senior Citizens League, a nonpolitical senior group, estimated the 10.5 percent cost-of-living adjustment (“COLA”) for 2023, and some organizations believe its prediction is correct. In June, there was a 9.1 percent increase in the Consumer Price Index (“CPI-U”) which was the steepest climb since 1981. Additionally, over the last 12 months, the Consumer Price Index for Urban Wage Earners and Clerical Workers (“CPI-W”) increased by 9.8 percent. The Social Security Administration uses the CPI-W to calculate each year’s COLA. However, next year’s COLA estimate is just that, an estimate. It is calculated by the Social Security Administration, which makes this calculation by identifying the third-quarter data from the previous year and comparing it with that of the current year.
Next Year’s Tax Increase Hinges on Inflation
Determining the specific increase for 2023 depends on whether inflation remains the same or decreases in the following months. If inflation slows down, the estimated 10.5 percent COLA may end up being closer to 9.8 percent. However, if inflation increases, Social Security recipients may see an increase of 11.4 percent in their benefits. This year’s increase was 5.9 percent, and, according to California tax lawyers, it was the highest increase in approximately four decades. Since then, inflation has continued to move in an undesirable direction.
Medicare Part B Premiums Climb
Even though the COLA increase will boost Social Security payments, other parts of the program will likely become more expensive. This includes Medicare Part B, the payment for which is usually deducted directly from a recipient’s Social Security check. This year, those premiums went to $170.10 per month. This was an increase of 14.5 percent, which was one of the highest jumps in the history of the program. If inflation continues to climb in the future, individuals with higher incomes may have to pay more for Part D benefits as well.
According to the Committee for a Responsible Federal Budget, which is a nonpartisan, nonprofit organization, the record high 2023 COLA will also impact the projected depletion date for the Social Security reserve. A report released in June by the annual Social Security Trustees projected that, by 2035, the Social Security fund will be depleted. However, if more recent inflation projections are used, it is estimated that the reserve may actually be depleted earlier, by 2034.
Calculating the COLA Increase
Internal Revenue Service tax attorneys recommend a simple way to determine how much additional money each beneficiary may receive. To calculate this, recipients simply multiply their gross benefit amount by 10.5 percent.
New benefit amount forms were sent to most 2022 beneficiaries last December, or January of this year for some, and the gross benefit amount can be found on this paperwork. For answers to more detailed questions about Social Security payments or the most recent COLA, it is best to get in touch with a tax attorney in San Jose or contact the Social Security Administration directly.