Wednesday, August 10, 2022

Social Security Taxable Income Limit 2022

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Social Security Disability Benefits Increased

Social Security Disability Insurance is an insurance program in which workers can earn coverage for benefits by paying Social Security taxes through their paycheck. The program provides income for those who can no longer work due to a disability, to help replace some of their lost income. Most years payments increase only increase slightly, however, the 9.6 million Americans who receive Social Security disability benefits will be pleased to learn 2022’s 5.9% increase will result in a more noticeable boost in benefits.

Disabled workers will receive on average $1,358 per month in 2022, up from $1,282 in 2021. However, for a disabled worker, spouse, and one or more children, theyll be paid on average $2,383 per month, an increase of $133 thanks to the 5.9% COLA.

What Are Social Security Taxes And Their Limits

Social security tax, also known as FICA is an employment tax levied by the Federal Government on individuals earning income in the United States. It is paid by both employees and employers . If your total wages are above $142,800 then only the first $142,800 will be subject to social security tax. The wage base is set to rise from year to year based on average national wage indexing. However, what most people dont know about FICA tax rules is that there are no limits when it comes to Medicare taxes which is 1.45% of all earnings regardless of how much or how little you earn each year or what age you are.

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Why We Have An Earnings Limit

Not long ago, a viewer on my YouTube channel asked me to give her a good reason why we have the Social Security earnings limit. The comments that followed showed how many viewers shared the belief that the earnings limit is unfair and should be eliminated.

In my response, I explained that the rationale behind the entire program of Social Security was to create a safety net. The original intent of the Social security program was not to supplement retirement income, but to keep the elderly out of poverty.

I also added that todays earnings limit is relatively generous compared to where the Social Security earnings limit began. The original Economic Security Bill President Roosevelt sent to Congress featured a very restrictive earnings limit.

That bill stated, No person shall receive such old-age annuity unless . . . He is not employed by another in a gainful occupation.

Whoa! This means that if you had even a single dollar in wages from a job, you could not collect a Social Security benefit at all.

Thankfully, the system we have in place today allows for individuals to have some earnings from work while they are receiving a Social Security benefit.

However, its very important to stay informed on the dollar amount of this limit because it changes every year.

For 2022, the Social Security earnings limit is $19,560. For every $2 you exceed that limit, $1 will be withheld in benefits.

2022 Social Security Earnings Limit

Here Are Five Ways That Social Security Will Be Changing In 2022

Federal Budget 2020/21

WHAT’S NEXT? How Will Social Security benefits change in 2022?

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1) Continued Erosion of the Social Security Trust Fund

Without some significant adjustments to Social Security by Congress, the current excess Social Security trust fund revenue will be depleted by the year 2033. If this occurs, it is estimated that Social Security would only be able to pay less than 80% of the promised benefits from ongoing payroll taxes. To be clear, a 20% reduction in Social Security benefits would be disastrous and threaten to throw many American retirees into poverty.

Also Check: When Do You Qualify For Social Security Benefits

What Is The Maximum Taxable Income For Social Security For 2023

As a worker, theres a limit on the amount of your earnings that are taxed by Social Security. This is known as maximum taxable earnings, which shifts on a yearly basis in line with changes in the national average wage index. For 2022, that amount is $147,000, but the Social Security Administration has suggested several provisions that could modify that amount in 2023.

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The OASDI tax rate for wages paid in 2022 is currently set at 6.2% for employees and employers, each. For self-employed workers, the rate is 12.4%. According to the SSA, a worker with wages equal to or larger than $147,000 would contribute $9,114.00 to the OASDI program in 2022, and his or her employer would contribute the same amount. If the worker is self-employed, they would contribute the full amount of $18,228.

For 2023, the SSA has provisions that could either modify the current OASDI payroll tax rate of 12.4% or the taxable maximum. CNBC reported that a recent congressional proposal aims to apply the payroll tax on wages of $400,000 and up to help address Social Securitys solvency problem. This means that earnings up to $147,000 would still be taxed, but would not be applied again until wages reached $400,000.

Two other suggested provision aims to apply the OASDI 12.4% payroll tax rate on earnings above $250,000 or $300,000 starting in 2023, which would tax all earnings once the taxable maximum exceeds $250,000 or $300,000.

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What Are The 2022 Earnings Test Limits

Before we dive into next year’s earnings test limits, let’s do a refresher on the rules for claiming Social Security. The earliest age to sign up for Social Security is 62. But you’re not entitled to your full monthly benefit — the one that’s calculated based on your earnings history — until you reach full retirement age, or FRA.

FRA depends on your year of birth. You can consult this table to see what yours looks like:

If Your Year of Birth Is

Your Full Retirement Age Is

1943-1954

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More Of Your Social Security Will Be Taxed

Yes, your Social Security benefits are taxable. The amount that is hit with taxes will depend on household income levels. Just 50% of your benefits will be taxed if your income is between $25,000 and $34,000 as an individual. That goes up to $32,000 to $44,000 for a married couple, which is another example of the marriage penalty. As you get more Social Security income, more of your benefits will be taxed.

Hopefully, everyone reading this will have more income than that to live off in retirement. If so, 85% of your Social Security benefits will be taxable. That is assuming you have an income, in retirement, of $34,000 or $44,000 as a married couple.

Whatever your current age, take a moment and register for access to your Social Security benefit estimates. Visit ssa.gov, take a few minutes, and you will be able to find more information about Social Security, and more importantly, get an estimate of what your Social Security benefits will look like in retirement.

How Much Of Your Social Security Income Is Taxable

Is Social Security Taxable?

Review the list below to determine where your total income falls and how much of your Social Security income is taxable. For:

  • Single, Head of Household or Qualifying Widow, the base amount is $25,000 and the maximum is $34,000.
  • , the base amount is $32,000 and the maximum is $44,000.
  • , the base amount is $0 and the maximum is $0.

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State Taxation Of Social Security Benefits

In addition to federal taxes, some states tax Social Security benefits, too. The methods and extent to which states tax benefits vary. For example, New Mexico treats Social Security benefits the same way as the federal government. On the other hand, some states tax Social Security benefits only if income exceeds a specified threshold amount. Missouri, for instance, taxes Social Security benefits only if your income is at least $85,000, or $100,000 if you’re married filing a joint return. Utah includes Social Security benefits in taxable income but allows a tax credit for a portion of the benefits subject to tax.

Although you can’t have state taxes withheld from your Social Security benefits, you generally can make estimated state tax payments. Check with the state tax agency where you live for information about the your state’s estimated tax payment rules.

Uncle Sam Can Tax Up To 85% Of Your Social Security Benefits If You Have Other Sources Of Income Such As Earnings From Work Or Withdrawals From Tax

Many people are surprised to learn that Social Security benefits can be taxed. After all, why is the government sending you a payment one day and asking for some of it back the next? But if you take a closer look at how the federal tax on Social Security is calculated, you’ll see that many people actually don’t pay any tax on their Social Security benefits.

There’s no federal income tax on Social Security benefits for most people who only have income from Social Security. Thanks to the highest cost-of-living adjustment in 40 years, the average monthly Social Security check for a retired worker in 2022 is $1,658, which comes to $19,896 per year. That’s well below the minimum amount for taxability at the federal level.

On the other hand, if you do have other taxable income such as from a job, a pension or a traditional IRA then there’s a much better chance that Uncle Sam will take a 50% or 85% bite out of your Social Security check. Plus, depending on where you live, your state might tax a portion of your Social Security benefits, too.

payments sent by the Social Security Administration are not taxable.)

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Does Working Past Age 70 Affect Your Social Security Benefits

Dear Carrie,

I’m turning 70 and about to start collecting Social Security even though I’m still working and intend to keep working for a couple more years. Since I’m past full retirement age, will I continue to pay Social Security taxes? Also, will continuing to work affect my monthly benefit?

A Reader

Dear Reader,

First, congratulations on waiting until 70 to collect your Social Security benefits. By doing so, you maximized your monthly payout. That’s a smart move for many folks!

But while Uncle Sam gives you a bonus for waiting to collect Social Security benefits, he doesn’t give you a dispensation from paying Social Security taxes. As long as you have earned income , you’re required to pay Social Security taxes on up to the annual payroll limitation$147,000 in 2022. So, yes, if you continue to work, you’ll continue to pay into Social Security and other payroll taxes.

Fortunately for you, since you’re past your full retirement age , there’s no benefit reduction based on income. You’re entitled to full benefits no matter your income level. However, earned income may impact your benefit if you take Social Security before your FRA.

Whether or not your continued income has a positive effect on the amount of your monthly Social Security benefit depends on how much money you made in the past and how much you’re making now. Here’s why.

What Is The Medicare Tax Limit

Learn About Social Security Income Limits

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 ratethe self-employed owe all 2.9%.

Keep in mind, if youre considered a highly compensated employee, your income is subject to an additional 0.9% Medicare tax . The added tax is applied in these circumstances:

  • Single and earn wages more than $200,000
  • Head of household and earn more than $200,000
  • Qualifying widow with dependent child earning more than $200,000

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Five Ways Social Security Will Be Changing In 2022

There are 5 significant ways Social Security will be changing in 2022. What you need to know.

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By now, you have probably heard that every day 10,000 or so baby boomers are turning 65. The Coronavirus may have pushed millions of Americans to retire earlier than expected. Some of you reading this have already entered retirement. I’ve been helping with people’s retirement planning long enough to know that many of you are likely counting the days until you reach financial freedom and can leave the full-time workforce. For many, Social Security benefits will be a significant part of their income in retirement. With that in mind, it is essential to know how Social Security will be changing for 2022.

The Impact Of Roth Iras

If youre concerned about your income tax burden in retirement, consider saving in a Roth IRA. With a Roth IRA, you save after-tax dollars. Because you pay taxes on the money before contributing it to your Roth IRA, you will not pay any taxes when you withdraw your contributions. You also do not have to withdraw the funds on any specific schedule after you retire. This differs from traditional IRAs and 401 plans, which require you to begin withdrawing money once you reach 72 years old, or 70.5 if you were born before July 1, 1949.

So, when you calculate your combined income for Social Security tax purposes, your withdrawals from a Roth IRA wont count as part of that income. That could make a Roth IRA a great way to increase your retirement income without increasing your taxes in retirement.

Another thing to note is that many retirement plans allow individuals, aged 50 years or older, to make annual catch-up contributions. You can make catch-up contributions up to $1,000. These must be made by the due date of your tax return. You have until April 15, 2022 to make the $1,000 catch-up contribution apply to your 2021 Roth IRA contribution total.

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Social Security Wage Base 2022 Estimation By Ssa

If Bloombergs report is to be believed then as per the United States Social Security Administration the wage base can increase by up to 2.7% in 2022 which is approximately $146,700. The estimated wage base for 2022 has been calculated based on low-end and high-end projections. It can also be $147,300 for 2022 based on high-end projections which will be an increase of approximately 3.1% from the current wage base limit.

How To File Social Security Income On Your Federal Taxes

Calculating the maximum Social Security tax you can pay

Once you calculate the amount of your taxable Social Security income, you will need to enter that amount on your income tax form. Luckily, this part is easy. First, find the total amount of your benefits. This will be in box 3 of your Form SSA-1099. Then, on Form 1040, you will write the total amount of your Social Security benefits on line 5a and the taxable amount on line 5b.

Note that if you are filing or amending a tax return for the 2017 tax year or earlier, you will need to file with either Form 1040-A or 1040. The 2017 1040-EZ did not allow you to report Social Security income.

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State Taxes On Social Security Benefits

Everything weve discussed above is about your federal income taxes. Depending on where you live, you may also have to pay state income taxes.

There are 12 states that collect taxes on at least some Social Security income. Two of those states follow the same taxation rules as the federal government. So if you live in one of those two states then you will pay the states regular income tax rates on all of your taxable benefits .

The other states also follow the federal rules but offer deductions or exemptions based on your age or income. So in those nine states, you likely wont pay tax on the full taxable amount.

The other 38 states do not tax Social Security income.

State Taxes on Social Security Benefits
Taxed According to Federal RulesMinnesota, Utah

‘s 59% Cola Is The Largest Since 1982

      Every October, the Social Security Administration announces its annual changes to the Social Security program for the coming year. Below is our summary of the Social Security changes that were announced in October 2021 and are set to take effect on Jan. 1, 2022.

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      Earnings Limits For Recipients Were Increased

      If you work while collecting Social Security benefits, then all or part of your benefits may be temporarily withheld, depending on how much you earn. However, those income limits have increased slightly for 2022.

      Prior to reaching full retirement age, you will be able to earn up to $19,560 in 2022. After that, $1 will be deducted from your payment for every $2 that exceeds the limit. The 2022 annual limit represents a $600 increase over the 2021 limit of $18,960.

      If you reach full retirement age in 2022, then you will be able to earn $51,960, up $1,440 from the 2021 annual limit of $50,520. For every $3 you earn over the limit, your Social Security benefits will be reduced by $1, but that will only apply to money earned in the months prior to hitting full retirement age. Once you reach full retirement age, no benefits will be withheld if you continue working.

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