The Social Security Tax Limit For 2022 And How It Works Explained
CLAIMING Social Security benefits have never been easier, and millions of senior citizens and disabled Americans are eligible
Nearly 33 percent of the elderly’s ages 65 and up income comes from Social Security benefits, and almost nine out of 10 elders receive these benefits.
To qualify, seniors must have worked for a certain number of years and paid into the Social Security system for a certain amount of time.
The amount received depends upon when you were born, your earnings history, and when you begin to claim benefits.
Some households are also subject to pay taxes on their Social Security benefits, usually if there are additional significant earnings including wages, self-employed earnings, dividends, or other taxable income.
It’s important to note that Supplemental Security Income differs from monthly Social Security benefits. SSI payments are not taxable.
Retired Workers Hoping To Receive The Maximum Social Security Benefit Must Meet Certain Criteria Related To Income And Age
The maximum Social Security benefit for retired workers increases each year to keep pace with rising wage levels. In 2023, the maximum benefit is $4,555 per month, up from $4,194 per month in 2022. That means Social Security benefits could provide up to $54,660 in income this year. However, retired workers must meet two criteria in order to qualify for that benefit. Very few Americans will actually achieve that goal.
Here are the criteria retired workers must meet in order to qualify for the maximum Social Security benefit of $4,555 per month in 2023.
Image source: Getty Images.
What Happens When Your Nine Month Trial Work Period Ends
The Trial Work Period permits nine months of above-the-limit monthly earnings while continuing to receive the full monthly SSD benefit payment. Once the nine months are all used, the Social Security Administration encourages the working SSD recipient to continue earning a higher income. SSD created the Extended Period of Eligibility of three additional months during which the SSD recipient can continue to earn more than the SSD income limit and still receive their usual monthly SSD payment.
After the three-month Extended Period of Eligibility is used, then SSD benefit payments will stop if the SSD recipient continues to work and earn more than the monthly income limit. But, for another period of 36 months, benefits will be resumed if the workers income falls beneath the monthly income limit for SSD benefits eligibility.
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Can You Do Any Other Type Of Work
If you cant do the work you did in the past, we look to see if there is other work you could do despite your medical impairment.
We consider your medical conditions, age, education, past work experience, and any transferable skills you may have. If you cant do other work, well decide you qualify for disability benefits. If you can do other work, well decide that you dont have a qualifying disability and your claim will be denied.
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Determine Your Wages For Each Year You’ve Worked
The federal government keeps track of how much money you’ve paid Social Security taxes on each year in your earnings record. You can view this in your my Social Security account.
For most people, their actual income and the income they’ve paid Social Security taxes on are the same. But this isn’t always the case with high earners. In 2022, for example, you only pay Social Security taxes on the first $147,000 you earn. In 2023, this amount increases to $160,200. So if your earnings record shows $147,000 for 2022, that’s not a mistake, even if your actual income for the year was much higher.
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Who Is Eligible For Social Security Benefits
Anyone who pays into Social Security for at least 40 calendar quarters is eligible for retirement benefits based on their earnings record. You are eligible for your full benefits once you reach full retirement age, which is either 66 and 67, depending on when you were born. But if you claim later than that – you can put it off as late as age 70 – youâll get a credit for doing so, with larger monthly benefits. Conversely, you can claim as early as age 62, but taking benefits before your full retirement age will result in the Social Security Administration docking your monthly benefits.
The bottom line: Youâre eligible for Social Security Benefits if youâve paid into the system for at least a decade, but your actual benefits will depend on what age â between 62 and 70 â you begin to claim them.
How Working Affects The Taxation Of Your Benefits
Now you know how work affects your benefit payment amounts, but did you know that working can also affect whether or not your benefits are taxed? There is also an earnings test when it comes to the taxability of your retirement benefits. Unlike the earnings test used for potential benefit reduction, almost all your income counts toward the taxability of your Social Security benefits. Even retirement plan income, like IRA or 401k withdrawals, counts toward the annual limit. In 2022, if your adjusted gross income, including half of your Social Security payments, exceeds $25,000, then 50% of your benefits are likely taxable. For a married couple, this limit increases to $32,000.
If your income for the year exceeds $34,000, then up to 85% of your benefits will be taxable. Again, for a married couple, this limit increases to $44,000. For beneficiaries who rely solely on Social Security, these limits are not usually met. However, if you have retirement income from other sources, it likely means that you will pay taxes on a portion of your Social Security benefits. No more than 85% of your Social Security benefits will be taxable. You will also get to keep 15% of your benefits tax-free, regardless of your total income.
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Benefits For Widows Or Widowers With Disabilities
If something happens to a worker, benefits may be payable to their widow, widower, or surviving divorced spouse with a disability if the following conditions are met:
- The widow, widower, or surviving divorced spouse is between ages 50 and 60.
- The widow, widower, or surviving divorced spouse has a medical condition that meets our definition of disability for adults and the disability started before or within seven years of the workers death.
Widows, widowers, and surviving divorced spouses cannot apply online for survivors benefits. If they want to apply for these benefits, they should contact Social Security immediately at 1-800-772-1213 to request an appointment
To speed up the application process, complete an Adult Disability Report and have it available at the time of your appointment.
We use the same definition of disability for widows and widowers as we do for workers.
How Much Social Security Will I Get In Retirement
In this article:
The amount of your monthly Social Security retirement benefit depends on multiple factors, including how much you earn over your working life, how old you are when you retire and allowances for inflation. Understanding how the payment is calculated can help you estimate what to expect and better position yourself to plan for retirement. Here’s how it works.
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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 Rules
How To File Social Security Income On Your Federal Taxes
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.
Fact #: Social Security Is More Than Just A Retirement Program It Also Provides Important Life Insurance And Disability Insurance Protection
Over 65 million people, or more than 1 in every 6 U.S. residents, collected Social Security benefits in January 2022. While older adults make up about 4 in 5 beneficiaries, another one-fifth of beneficiaries received Social Security Disability Insurance or were young survivors of deceased workers.
In addition to Social Securitys retirement benefits, workers earn life insurance and SSDI protection by making Social Security payroll tax contributions:
- About 96 percent of people aged 20-49 who worked in jobs covered by Social Security in 2020 have earned life insurance protection through Social Security.
- For a young worker with average earnings, a spouse, and two children, thats equivalent to a life insurance policy with a face value of nearly $800,000 in 2020, according to Social Securitys actuaries.
- About 89 percent of people aged 21-64 who worked in covered employment in 2020 are insured through Social Security in case of severe disability.
The risk of disability or premature death is greater than many people realize. Some 7 percent of recent entrants to the labor force will die before reaching the full retirement age, and many more will become disabled.
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Make Sure You Enroll On Time And Be Careful With Your Hsa
Both Medicare and Medigap have specific enrollment periods, and if you miss them you could be hit with late-enrollment penalties. However, you may be able to enroll after age 65 without penalties if, for a period after you reach age 65, you receive employer coverage. Pay close attention to Medicare enrollment periods if you have retiree health insurance from a former employer or are under COBRA. These types of coverage do not allow you to defer enrollment past age 65 without penalties and may leave gaps in your coverage.
Also note that once you are enrolled in Medicare, you’re not permitted to make contributions to a Health Savings Account . If you enroll in Medicare after reaching age 65, Medicare will backdate your enrollment by six months . To avoid an IRS penalty, make sure you stop contributions to the HSA in time.
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How Much In Taxes Does Social Security Withhold
The maximum amount of earnings that is subject to the Social Security tax is $147,000 in 2022, up from $142,800 in 2021. There is no limit to the amount of income subject to the Medicare tax.
Note that the Social Security figures and limits for 2021 can be found in our 2021 COLA update.
Effective date: Jan 01, 2022
Whats The Disability Earnings Limit For The Blind And Non
The SGA, or earnings per month, must fall beneath the allotted amount for the individual to receive full disability payments. The 2022 limit of $1,350 applies to disabled individuals who are sighted.
Theres a higher limit for blind individuals. They must stay below the monthly earning level of $2,260 .
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Who Is Eligible To Collect Social Security Retirement Benefits
Workers who are at least age 62 and who have worked at least 10 combined years at jobs for which they paid Social Security taxes are eligible for Social Security retirement benefits. In many cases, spouses, widows and divorcees are eligible for Social Security retirement benefits based on a spouses or ex-spouses earnings history. Unmarried children 18 and younger can also get survivors benefits. You must be a U.S. citizen or lawful alien to collect benefits.
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This is an increase from the previous amount of $142,800 in 2021 and means that workers on high salaries will be paying tax on more of their income.
The tax rate for 2022 earnings sits at 6.2% each for employees and employers.
So individuals earning $147,000 or more in 2022 would contribute $9,114 to the OASDI program, and their employer would contribute the same amount, according to the Social Security Administration.
For those who are self-employed, the OASDI tax rate is 12.4%.
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Fact #: Social Security Provides A Foundation Of Retirement Protection For Nearly All People In The Us
97% of older adults either receive Social Security or will receive it.
Almost all workers participate in Social Security by making payroll tax contributions, and almost all older adults receive Social Security benefits. In fact, 97 percent of older adults either receive Social Security or will receive it, according to Social Security Administration estimates.
The near universality of Social Security brings many important advantages. It provides a foundation of retirement protection for people at all earnings levels. It encourages private pensions and personal saving because it isnt means-tested it doesnt reduce or deny benefits to people whose income or assets exceed a certain level. Social Security provides a higher annual payout than private retirement annuities per dollar contributed because its risk pool is not limited to those who expect to live a long time, no funds leak out in lump-sum payments or bequests, and its administrative costs are much lower.
Universal participation and the absence of means-testing make Social Security very efficient to administer. Administrative costs amount to only 0.6 percent of annual benefits, far below the percentages for private retirement annuities. Means-testing Social Security would impose significant reporting and processing burdens on both recipients and administrators, undercutting many of those advantages while yielding little savings.
Adjust Your Wages For Each Year For Inflation
The government uses the Average Wage Index to adjust your wages for inflation so it can accurately pick out the years you’ve earned the most. You can view the AWI for all previous years going back to 1951 on the Social Security Administration’s website.
The AWI you use to adjust your wages is the one that was in effect in the year you turned 60. You divide this AWI by the AWI for the year you’re adjusting wages for. The result is your index factor. Multiply this by your income as reported in your earnings record for that year to get your index-adjusted wages.
For example, if you turned 60 in 2021, you’d use the 2021 AWI of $60,575.07 as your benchmark. If you earned $50,000 in 2015 and you want to calculate your index-adjusted income for that year, you’d do the following:
If that’s a little too much math for you, you can skip the first step and go straight to the indexing factors. The Social Security Administration keeps lists of all the indexing factors for all years. You just have to enter the year you turn 60 and it will give you the index factors to use. Then all you have to do is multiply those indexing factors by your income for the appropriate year.
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What Income Is Included In Your Social Security Record
Only earned income, your wages, or net income from self-employment is covered by Social Security. If money was withheld from your wages for Social Security or FICA, your wages are covered by Social Security. This means you are paying into the Social Security system that protects you for retirement, disability, survivors, and Medicare benefits.
Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.
Social Security Tax Limit 2023
For money earned in 2023, the taxable maximum is $160,200, which is nearly a nine percent increase from 2022.
People who make more than $160,200 in 2023 will be paying $818 more in Social Security taxes.
Some individuals will be exempted from paying taxes if they are ministers and church employees or members of certain religious groups who waive their rights to all Social Security benefits.
Students who are employed by their school like international students who are temporarily in the U.S. under certain types of visas are also exempted.
Minors employed in a family business and non-citizens working for a foreign government in the US, and self-employed individuals with less than $400 of income aren’t required to pay Social Security taxes.
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Social Security Income Limits For 2022
Heres how much Social Security will deduct from your earnings if you work while collecting Social Security before your FRA:
If you are under full retirement age for the entire year, Social Security will deduct $1 from your benefit payments for every $2 you earn above the annual limit.
For 2022, that limit is $19,560.
In the year you reach full retirement age, Social Security will deduct $1 in benefits for every $3 you earn above a different limit.
In 2022, this limit is $51,960.
The limit changes every year, similar to the changes in COLA.
The table below provides a summary of the earnings limit:
|For every $3 over the limit, $1 is withheld from Social Security benefit