Maybe you’ve heard that Social Security payments are getting their largest cost-of-living adjustment in decades this month.
That certainly sounds like a good thing on paper, but the devil is in the details. After all, inflation is nearly as high as it’s been in decades, too.
How big is this Social Security increase, really, and what will it affect? More importantly, when can you get it?
Keep reading for all those answers and more. Here’s what you need to know about the Social Security cost-of-living adjustment (COLA) for 2022.
1. The amount of your Social Security increase
In October, the Social Security Administration announced the biggest COLA increase in Social Security benefits since the early 1980s.
The 8.7% increase works out to an estimated $146 more per month for retired workers, on average.
After a decade of mostly anemic COLA increases, it’s certainly a welcome change. Unfortunately, it may not be cause for too much celebration.
2. Your benefit isn’t as big as it seems to begin with
Many Social Security recipients have their Medicare Part B premiums withheld from their benefit payments. (Part B covers doctor visits and other outpatient services.)
So those folks never receive their full Social Security benefit amount each month, but rather what’s leftover after their Part B premium is taken out.
Typically, that deduction is compounded by the fact that Part B premiums increase annually, but 2023 is a rare exception: As we detail in “Multiple Medicare Costs to Drop in 2023,” Part B premiums actually will decrease by a hair.
3. Your COLA could increase your tax bill
The COLA will increase retirees’ Social Security income. That extra income could in turn cause some retirees to owe more taxes on the benefits they receive in 2023 than those they received in 2022.
It could also cause some people who aren’t currently taxed on their Social Security income to owe Uncle Sam a portion of the benefits they receive in 2023.
We explain the math in “Why the Social Security Bump Will Cost Some Retirees in 2023,” but the gist is this: About half of retirees owe taxes on up to 85% of their Social Security benefits, which effectively means they owe a piece of their COLA to Uncle Sam.
You can mitigate this issue by filing a Form W-4V with the Social Security Administration. This won’t change whether you’re taxed on your benefits; instead, it allows you to have taxes withheld from your benefits so you don’t get blindsided later by a big tax bill or a penalty for not making tax payments throughout the year.
4. When you will start receiving your COLA
You’ll actually start receiving your new benefit amount this month, according to the Social Security Administration. The exact date your benefits are sent typically depends on your birthday:
- If your birthday falls on days 1 through 10: You receive your payments on the second Wednesday of each month, meaning you will receive your first payment with the 2023 COLA on Jan. 11.
- If your birthday falls on days 11 through 20: You receive your payments on the third Wednesday of each month, meaning you will receive your first payment with the 2023 COLA on Jan. 18.
- If your birthday falls on days 21 through 31: You receive your payments on the fourth Wednesday of each month, meaning you will receive your first payment with the 2023 COLA on Jan. 25.
These dates are a rule of thumb, though. There are exceptions, as we note in “Your Social Security Checks Get Bigger on This Date.”