Maximum Social Security Taxes Will Increase 2.9%, While Benefits Will Rise 5.9% In 2022

maximum-social-security-taxes-will-increase-29%,-while-benefits-will-rise-5.9%-in-2022

How much will you pay in Social Security taxes and how much will you get in benefits?

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The Social Security Administration announced key numbers today that affect workers and retirees—a substantial increase in the taxable wage base for workers and the biggest increase in benefits for retirees in decades.

First the wage base news. The maximum amount of earnings subject to Social Security tax will rise 2.9% to $147,000, from $142,800 in 2021. That means a bigger tax bill for about 12 million high-earning workers. The increase in the wage base reflects any real wage growth. The maximum Social Security tax per worker will be $18,228—or a maximum $9,114 withheld from a highly paid employee’s 2022 paycheck. Workers and their employers each pay a 6.2% Social Security tax; the self-employed pay both sides of the tax. (The benefits boost is based on the Consumer Price Index, and a different index measuring wage growth determines annual increases in the wage base.)

For retirees, the key number is the cost-of-living adjustment (COLA): More than 64 million recipients will get the 5.9% boost in 2022, compared to a 1.3% Cola in 2021. That means the average Social Security benefit for a retired worker will rise by $92 a month, to $1,657, in 2022 while the average benefit for a retired couple will grow $154 a month to $2,753. The last time retirees saw such a big increase was in 2009 when the increase was 5.8%. The prior high was 7.4% in 1982.

Retirees will have to factor in Medicare Part B and Part D premiums—and income-related surcharges—all of which reduce their overall benefits package. The Senior Citizens League has found that Medicare Part B premiums are one of the fastest-growing costs in retirement. Medicare Part B premiums, which are automatically deducted from Social Security checks, often consume most, or even all, of the Cola increase.

If you’re on Medicare, you won’t get your exact 2022 Social Security benefit amount until the official Medicare premium amounts are announced. You can check in December if you have an online Social Security account. The Centers for Medicare & Medicaid Services says that 7% of Medicare recipients will pay income-related surcharges, which apply to Part B and Part D drug premiums, in 2021. The surcharges were indexed for inflation for the first time in 2020 (except for the $500,000 and above income tier), providing some relief. For 2021, they kick in for individuals with $88,000 in income and couples filing jointly with $176,000 in income. The wealthiest senior couples are paying more than $12,000 a year in Medicare Part B premiums.

The Social Security Administration also announced the earnings limit for workers who are younger than “full” retirement age (age 66 for people born in 1943 through 1954). You can find out what your full retirement age is and see how much your benefit will be reduced if you claim benefits before full retirement age on the Social Security website. Recipients who are under full retirement age will be docked $1 in benefits for every $2 in earnings above $1,630 a month, or $19,560 a year in 2022. A worker who turns 66 and four months in 2022 (the full retirement age for those born in 1956) can earn up to $4,330 a month before his or her birthday, without losing benefits. Above that threshold, the worker will lose $1 in benefits for each $3 earned. Once you reach “full” retirement age, you can earn as much as you like without losing Social Security benefits at all. A higher Cola isn’t all good news.

The Committee for a Responsible Federal Budget warns that Social Security is already on a path to insolvency and estimates the higher cost-of-living payments could deplete the program’s trust fund a year earlier than projected (2032, instead of 2033, per the Congressional Budget Office).

Here’s a look at Cola increases since 2011.

2022: 5.9%

2021: 1.3%

2020: 1.6%

2019: 2.8%

2018: 2%

2017: 0.3%

2016: No increase.

2015: 1.7%

2014: 1.5%

2013: 1.7%

2012: 3.6%

2011: 0%

2010: 0%

2009: 5.8%

The Social Security Adminstration released this fact sheet on the 2022 Social Security changes.

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