People are getting tired of inflation discussions. The topic is discussed everywhere people turn. This has not always been the case over the past few decades. However, a few areas where it is always discussed is with regards to social security benefits and tax laws.
Social Security Benefits Adjustments
Effective January 1, 2023, the Social Security Administration announced that a cost-of-living adjustment (COLA) of 8.7% will be made for Social Security income. The increase, based on the consumer price index, marks a trend of rising COLAs in recent years and compares with an increase of 5.9% in 2022 and 1.3% in 2021.
The cost-of-living adjustment is based on the Consumer Price Index (CPI-W) increase from the third quarter of 2021 through the third quarter of 2022.
For those still earning income, the Social Security portion (6.2%) of tax is due on the first $160,200 of income. That figure increased from $147,000 in 2022.
Retirees receiving Social Security benefits will be able to earn $56,520 in the year they reach full retirement age before their benefits are reduced by $1 for every $3 in earnings over the limit. That figure is an increase from $51,960 in 2022.
Income and Gift Tax Law Adjustments
Tax law requires the Treasury Department to adjust certain limitations for cost-of-living increases annually.
Effective January 1, 2023, the following applicable limitations will be adjusted:
- 401k retirement elective deferrals increase from $20,500 to $22,500
- 401k catch-up contributions for individuals aged 50 or over increased from $6,500 to $7,500
- IRA contribution limits increase from $6,000 to $6,500
- IRA catch-up contributions for individuals aged 50 or over remain at $1,000
- Health savings account contributions increase to $3,850 (individual coverage) and $7,750 (family coverage)
- The annual gift tax exclusion increases from $16,000 to $17,000.