Understand for 2023 these important numbers that could affect your railroad retirement.
Welcome everyone to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name is John McNamara of Highball Advisors, and welcome to 2023. What we're going to do here is just go over some of facts and figures, important numbers, that you really should know for 2023, especially if you're collecting railroad retirement, approaching it, that type of thing. So, we'll just go through the questions here.
What is the maximum percentage of tier one payments subject to Federal taxation in 2023? Well, to tell you the truth, that really, that hasn't changed. It's still 85% of your tier one can be taxable. Doesn't mean an 85% tax rate, so understand that, but 85% of it can be taxed. All right, so that's the first one.
The second one has changed here. What is the maximum amount of earnings subject to tier one tax? Inflation moves this number up every year, so that's $160,200. So, you will be paying your tier two tax, which will be 6.2% up to 160,200, then anything over that, it stops. All right, so that's the number for the tier one portion.
Then the next question is, what is the maximum amount of earnings subject to tier two taxation? All right. Now, this number also moves up because of inflation. So 118,800, so once again, you're going to keep paying 4.9% up to this number that you earn. Anything over, then that tier two tax stops. All right.
Next question. What is the cost-of-living adjustment for railroad retirement beneficiaries? So, how much did their railroad retirement annuity go up for 2023? Tier one, 8.7%. Tier two, 2.8%. All right, good increase this year. Don't expect it for the next year of that size, but that's a big increase, for sure.
Continuing on, I guess, with the inflation theme, so to speak, do railroaders need to claim early to get benefits for annual cost-of-living adjustments? I hear that a lot. "Hey, maybe I should start my railroad retirement so I can get this year my 8.7%." You don't need to do that. Once you're eligible, so let's say if you're 60 and 30 person, that makes you eligible for railroad retirement, even though you're still working, you'll still get that bump. And if you're not, let's say, if you're at 62 and you have 20 years, you'll still get the cost-of-living adjustment when you claim and it starts, but that amount's going to keep going up every year. That's assuming you're still working for the railroad, so you don't need to claim it, "Oh, I got to get in in December so I can get that adjustment." As long as you're eligible, they'll put that adjustment for you.
All right, last question. How much of provisional income can a recipient earn in 2023 before triggering taxes on the railroad retirement? So, that's that work deduction thing. Hey, I'm still working, collecting railroad retirement. Maybe I'm doing something else. Reduction. So, you can earn up to $24,999. Now, remember, that's just on the tier one portion. The work deductions for tier two only happen if you're working for your last pre-railroad retirement employer, in which case, it just starts at zero. It's 50% of tier two or $1 for every $2 up to 50% of tier two. All right, so this number's a little bit bigger. I think it was 19,000 last year. Now, it's up to 24,999. So, that's a lot bigger.
So, these are some good numbers just to have floating in your head as we approach 2023. If you're working for the railroad, if you're a railroad retiree, these are the numbers that are going to be affecting your life. No doubt about that.
I hope you found this helpful. Feel free to reach out to me if you're at or near retirement, looking to understand how some of these numbers are going to affect your life. Sign up for that Boarding for Railroad Retirement Process. We'll go through all that. Subscribe to the YouTube channel. Really appreciate that. Click on the notification bell to get the latest video. And until next time, everyone, please stay safe, stay on track, and take care. So, long, everybody. Bye.
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