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2022 Wage Cap Jumps to $147,000 for Social Security Payroll Taxes

2022 Wage Cap Jumps to $147,000 for Social Security Payroll Taxes

Starting Jan. 1, 2022, the maximum earnings subject to the Social Security payroll tax will increase by $4,200 to $147,000—up from the $142,800 maximum for 2021, the Social Security Administration (SSA) announced Oct. 13. The SSA also posted a fact sheet summarizing the 2022 changes.The taxable wage cap is subject to an automatic adjustment each year based on increases in the national average wage index (not the inflation rate), calculated annually by the SSA. Payroll Taxes: Cap on Maximum Earnings Type of Payroll Tax 2022 Maximum Earnings 2021 Maximum Earnings Social Security $147,000 $142,800 Medicare No limit No limit Source: Social Security Administration. The growth of the Social Security wage cap from $127,200 in 2017 to 147,000 in 2022 represents more than a 15.5 percent increase over the past five years.The $4,200 increase for 2022, however, is smaller than the 2021 increase of $5,100, up from the $137,700 maximum for 2020, reflecting constraints on wage increases during the height of the COVID-19 pandemic.Inflation Impacts Benefits PaymentsMeanwhile, monthly Social Security and Supplemental Security Income benefits for more than 64 million people in the U.S. will increase by 5.9 percent in 2022—the biggest cost-of-living (COLA) adjustment since the 1980s—the SSA also announced, reflecting this year’s inflation spike. The adjustment will boost the average monthly retirement benefit by $92 to roughly $1,657. The Senior Citizens League, an advocacy group, called the benefits increase “the highest COLA that most beneficiaries living today have ever seen,” but added that “a high COLA means exceptionally high inflation is impacting consumers.”FICA RatesSocial Security and Medicare payroll taxes are collected together as the Federal Insurance Contributions Act (FICA) tax. FICA tax rates are statutorily set and can only be changed through new tax law.Social Security is financed by a 12.4 percent payroll tax on wages up to the taxable earnings cap, with half (6.2 percent) paid by workers and the other half paid by employers. Self-employed workers pay the entire 12.4 percent.For employers and employees, the Medicare payroll tax rate is a matching 1.45 percent on all earnings (self-employed workers pay the full 2.9 percent), bringing the total Social Security and Medicare payroll withholding rate for employers and employees to 7.65 percent—with only the Social Security portion limited to the taxable maximum amount. FICA Rate (Social Security + Medicare Withholding)Employee7.65%(6.2% + 1.45%)​Employer​7.65%(6.2% + 1.45%)​Self-Employed​15.3%(12.4% + 2.9%) Note: For employed wage earners, their Social Security portion is 6.2% on earnings up to the taxable maximum. Their Medicare portion is 1.45% on all earnings. The payroll tax rates shown above do not include an additional 0.9 percent in Medicare taxes paid by highly compensated employees on earnings that exceed threshold amounts based on their filing status:$250,000 for married taxpayers who file jointly.$125,000 for married taxpayers who file separately.$200,000 for single and all other taxpayers.These wage thresholds, set by law, do not adjust for inflation and therefore apply to more employees each year.Employers must withhold the additional Medicare tax from wages of employees earning more than $200,000 …