To stay compliant with payroll taxes, you need to be operating with the right data. This article has been updated with the correct payroll tax figures for 2022. We’ve also included a table to show how the Social Security taxable wage base limit has increased over time.
Social Security Taxable Wage Base Increases
|Year||Social Security Wage Base|
Both employees and employers must pay social security tax and split the total amount due for each employee. In 2022, the social security tax withholding rate is 6.2% for both employees and employers. For those self-employed, the rate is 12.4% because they have no employer to split the tax with.
However, the Old Age, Survivors, and Disability Insurance (OASDI) program sets a limit on how much of an employee’s income can be taxed each year. This limit changes annually and is based on the average wage index.
The Social Security Wage Base is the maximum gross earnings subject to Social Security tax that can be imposed on an employee.
What is the Social Security Limit?
The Social Security limit is $147,000 for 2022, meaning any income you make over $147,000 will not be subject to social security tax. Given these factors, the maximum amount an employee and employer would have to pay is $9,114 each ($18,228 for self-employed).
There is no wage limit for Medicare tax, which is currently 1.45% and applied to all covered wages paid. Both employees and employers have to pay this rate—the self-employed owe all 2.9%.
What is the Medicare Tax Limit?
There is no wage limit for Medicare tax, which is currently 1.45% and applied to all covered wages paid. Both employees and employers must pay this rate—the self-employed owe all 2.9%.
Keep in mind, if you’re considered a highly compensated employee, your income is subject to an additional 0.9% Medicare tax (employers do not have to pay this additional tax). The added tax is applied in these circumstances:
- Married filing jointly and earn wages more than $250,000/year
- Married filing separately and earns wages more than $125,000
- Single and earn wages more than $200,000
- Head of household (with qualifying person) and earn more than $200,000
- Qualifying widow(er) with dependent child earning more than $200,000
What is the FICA Tax?
Short for Federal Insurance Contributions Act, FICA is a combination of the Social Security tax and Medicare tax. On a pay stub, it may appear as FICA (OASDI). For 2022, the total amount of FICA tax withheld totals 15.3%, again with most employees paying half, splitting the amount with their employer (unless you have self-employment income, then you have to pay the entire 15.3%).
Social Security Changes for 2022
People turning 62 in 2022 will have to wait two months longer to claim full retirement benefits; full retirement age has increased from 66 years and 10 months to 67 years. Of course, you can always claim benefits beginning at age 62, but your lifetime benefits will be reduced by about 30%.
More than 70 million recipients will see their Social Security benefits increase from a hefty 5.9% cost of living adjustment (COLA) in their monthly payments, the largest adjustment since 1982. The bump will compensate for the inflation rate and amount to about $92 per month for the average recipient. The average monthly Social Security payout for 2022 is $1,657 while the maximum monthly benefit for a worker retiring at full retirement age increased $197 to $3,345.
If you work while collecting Social Security, your earnings limit increased for 2022. Prior to reaching full retirement age, you can earn $19,560 before deductions are made from your Social Security payments. After that amount, $1 will be deducted from your Social Security payment for every $2 over that limit. If you reach full retirement age in 2022, you can earn $51,960 before your payments are dinged. For every $3 you earn over that amount, your Social Security payment will be reduced by $1. But… once you reach full retirement age, no benefits will be withheld if you decide to keep working. After age 70, there’s no real benefit to delaying retirement—unless you just want to keep working—because your monthly benefit stops increasing.
If you’re one of the 10 million Americans who qualify for Social Security disability payments, you’ll also see a decent increase of 5.9% in your payment. For those designated as legally blind, payments will increase $70 to $2,260 a month. For the non-blind, monthly benefits increased $40 to a maximum of $1,350.
What is the maximum Social Security wages for 2022?
The maximum Social Security wages, or Social Security wage base, for 2022 is $147,000 for 2022.
Social Security COLA 2022:
How much will benefits increase next year? The Social Security cost of living adjustment (COLA) is based on changes in the Consumer Price Index. We don’t yet know what that will be for next year. This year’s increase was 5.9%, the largest since 1982.
How the COLA is calculated:
The Social Security cost of living adjustment is based on the difference between how much the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last cost of living increase to the third quarter of the current year. If there is no increase, there will be no cost of living increase.
What is the FICA rate for 2022?
The FICA rate for 2022 remains unchanged at 7.65% for employers and 7.65% for employees. Earning self-employment income means individuals pay the entire 15.3% themselves.
Paycor Can Help with Payroll Tax
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