Social Security Limits On Income 2022

Social Security Tax Limits

The government bases the annual Social Security tax limits on changes in the National Wage Index , which tends to increase every year. The changes are intended to keep Social Security benefits on track with current inflation.

Any income you earn beyond the wage cap amount is not subject to a 6.2% Social Security payroll tax. For example, an employee who earns $165,000 in 2022 will pay $9,114 in Social Security taxes .

Keep in mind, however, that there is no wage base limit for Medicare tax. While the employee is only subject to Social Security tax on the first $147,00, they will have to pay 1.45% Medicare tax on the entire $165,000. Workers who earn more than $200,000 in 2022 are also subject to an 0.9% additional Medicare tax.

The combination of the increase in the Social Security tax limit and the additional Medicare tax for high-earners could result in lower take-home pay. Unfortunately, that means workers who earned over $200,000 in 2021 are at risk of owing more taxes in 2022.

Here is an example of how the Social Security limit works in 2021 and 2022:

What Is The Sga Limit

If an SSI applicant has monthly earnings of $1,350 or more in 2022, Social Security considers the applicant to be engaging in substantial gainful activity and wont consider the applicant disabled.

But after starting to receive SSI benefits, the SGA limit no longer applies. An SSI recipient can work and make more than $1,350 without losing disability benefits , as long as the recipient is still considered disabled.

Continuing SSI recipients are still bound by the SSI income limit discussed above though . But remember, Social Security will deduct an SSI recipients countable income from his or her SSI payment, meaning that those who work will receive an SSI payment thats less than the full amount.

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Losing Your Social Security Disability Benefits

There are a few ways you can lose your Social Security Disability benefits, including:

• Earning more than the allowed amount: If you return to work and earn more than the maximum threshold for eligibility for benefits, you may lose your benefits. Alternatively, if you report your income incorrectly, you might give the impression that you earn more than you do and thus lose benefits.
• Losing your disability status: If your condition improves and you are no longer deemed disabled, you may lose benefits. Also, if you fail to provide the SSA with sufficient medical information, they may incorrectly conclude that you are not disabled.
• Other circumstances: Becoming incarcerated or leaving the country can also cause you to lose your Social Security Disability benefits.

If you have been denied benefits, a Social Security Disability lawyer can determine why and help you get back the money you need.

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How To Prepare For Next Year’s Cola

The new COLA won’t take effect until January 2023, and there’s nothing you need to do between now and then. The changes will take place automatically, so you won’t need to apply for the increase.

With inflation surging, a higher benefit amount can go a long way toward making everyday essentials more affordable. Just by understanding all the ways that next year’s COLA will affect your benefits, you can ensure you’re as prepared as possible.

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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:

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Social Security Income Limits After Full Retirement Age

Youve learned how working before full retirement age affects your benefits, including during the year in which you reach full retirement age. So, what happens to your Social Security payments once you finally reach full retirement age? Will working still continue to reduce your payments? The answer is no! Beginning in the month in which you reach full retirement age, your benefits will no longer be affected by working. There is no limit to the amount you can earn, and there will be no reduction to your benefits. Even if you earn over $100,000, you will still receive your maximum benefit during the year.

In addition, the Social Security Administration will recalculate your benefit payment to account for the previously withheld benefits. You will get credit for the months that your benefits were reduced or withheld. You should also know that the Social Security Administration has aspecial rule for the earnings limit that applies to retirees whose earnings will be over the limit for the year but who will only receive benefits for part of the year. They will pay full benefits for any whole month during which you are retired, regardless of your annual income. Plus, even though your benefits will no longer be reduced after reaching FRA, your benefits might become taxable if your earnings for the year are too high.

What Counts As Income For Social Security Benefits

Only certain kinds of income are included when calculating your Social Security income limit. This includes only earned income meaning wages from a place you are employed or contracted, or income from self-employment. Income from annuities, interest or dividends from a savings or investment account, and pensions do not count as earnings towards Social Security income limits.

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Situations That Can Change The Maximum Benefit

As we just saw, if youre a person who lives alone, the maximum SSI benefit is $1,040.21 . The maximum is different if you are an eligible couple, if you live in someone elses household and you dont pay the full costs of food and shelter, or if you live in an institution, such as a hospital, nursing home, or prison.

Maximum Taxable Earnings Rose To $147000

In 2021, employees were required to pay a 6.2% Social Security tax on income of up to $142,800. Any earnings above that amount were not subject to the tax. In 2022, the tax rate remained the same at 6.2% , but the income cap increased to$147,000.

The flip side is that as the taxable maximum income increases, so does the maximum amount of earnings used by the SSA to calculate retirement benefits. In 2021, the maximum monthly Social Security benefit for a worker retiring at full retirement age was $3,148. In 2022, the maximum benefit increases by $197 per month to $3,345.

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What To Know About Working While Receiving Retirement Benefits

The Balance / Marina Li

If you take Social Security benefits before you reach your full retirement age, and you earn an annual income in excess of the annual earnings limit for that year, your monthly Social Security benefit will be reduced for the remainder of the year in which you exceed the limit. If you will reach full retirement age during that same year, it will be reduced every month until you reach full retirement age.

The income withheld will be paid out once you reach full retirement age. In other words, your benefits aren’t lost they’re delayed.

Investment income does not count toward the annual earnings limit the only income that counts is earned incomethe income you earn by working either for someone or as a self-employed person.

What’s 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.

There’s a higher limit for blind individuals. They must stay below the monthly earning level of $2,260 .

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Higher Thresholds For The Social Security Earnings Test

The Social Security earnings test withholds money from seniors claiming benefits before their full retirement age if their income exceeds certain thresholds.

In 2022, a worker who will be under their FRA for the entire year loses $1 for every $2 they earn over $19,560. If they reach their FRA this year, they only lose $1 for every $3 they earn over $51,960 if they earn this much before their birthday. But it’s not gone forever. The government increases these individuals’ benefits once they hit their FRA to make up for what it previously withheld.

The thresholds for withholding due to the Social Security earnings test also change from year to year. So it’s very likely that you’ll be able to earn more money in 2023 before the government takes anything out of your checks. And if you’re already at your FRA, this doesn’t matter because the government won’t withhold any money from your checks due to your earnings.

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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What Other Requirements Are Beneficiaries Required To Meet

In order to receive Disability Insurance, a worker must have worked during at least one-fourth of his or her adult lifetime and during at least 5 of the 10 years before disability onset. There is also a five-month waiting period before a worker can qualify for benefits.

Supplemental Security provides assistance to people with severe disabilities who have very low incomes and assets and who either lack sufficient work history to be covered for Disability Insurance or receive only a very small Disability Insurance benefit. It is important to note that many Supplemental Security beneficiaries, although lacking the sustained work history necessary to be insured under Disability Insurance, have worked and paid into the Disability Insurance system. And others, particularly women, are not eligible for Disability Insurance because they took time out of the paid labor force to care for children or other family members.

Workers must apply for and exhaust all other available benefits before qualifying for Disability Insurance or Supplemental Security. Accordingly, Social Securitys disability programs serve as a true last resort for people with severe disabilities and little to no ability to work.

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 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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Other Ways This Could Impact Your Benefits

A record-breaking COLA doesn’t just mean an increase in benefits each month. The annual COLA affects several aspects of Social Security, and there are a few differences you may notice in 2023:

• A higher maximum benefit amount: In 2022, the most you can receive from Social Security is $4,194 per month. But because this number changes each year to account for cost-of-living changes, a higher COLA means there will likely be a higher max benefit for 2023.
• Increased maximum taxable earnings limit: If you haven’t yet retired, the maximum income subject to Social Security taxes is $147,000 per year. This limit also changes yearly because of inflation, so it will likely increase after next year’s COLA. This means higher earners will have more of their income subject to taxes.
• A higher earnings limit: If you continue working after claiming Social Security and you haven’t yet reached your full retirement age , your benefits may be reduced if your income exceeds the annual earnings limit. In 2022, that limit is $19,560 per year . But with a higher COLA comes a higher earnings limit, which means you’ll be able to earn more without facing reductions.
• Increased spousal and divorce benefits: The COLA doesn’t just apply to retirement benefits. If you’re receiving other types of Social Security — such as spousal benefits, divorce benefits, or Supplemental Security Income — you’ll receive a boost in 2023 as well.

What Will The Cola For 2023 Be

We won’t know the official COLA until October, as the SSA will wait until the September inflation data is released before it makes its announcement.

However, nonprofit organization The Senior Citizens League estimates that the COLA for 2023 could be around 8.7%, according to the latest consumer price index data from the Bureau of Labor Statistics. That’s an increase of around $144 per month for the average retiree.

For context, the COLA generally increases around 1% to 3% most years. This year, beneficiaries received a 5.9% raise, which was one of the largest in recent history. An 8.7% COLA would be the highest since 1981.

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Income Earned During The Year You Reach Fra

During the year you reach FRA, and up to that month you reach FRA, Social Security will deduct $1 for every $3 you earn that is over the annual earnings limit. For the year in which you will reach FRA, the earnings limit is different.

In 2021, this earnings limit is $50,520 , which means that you can earn up to $50,520 before having any pay deducted. The limit is $51,960 for those reaching FRA in 2022. During the year in which you reach FRA, Social Security only counts earnings that you receive before the month you reach FRA.

For example, let’s assume you were born in 1955, which means your FRA is age 66. You turned 66 in June 2021 and began your Social Security benefits at that time. You earned $44,000 from January through May of 2021. Your benefits will not be reduced, because you earned less than $50,520 during the months before you attained full retirement age.

The Social Security Administration website provides additional examples of how this deduction works. You can also use the earnings test calculator and plug in your date of birth and expected earnings to see whether you think a reduction will apply to you.

Work For At Least 35 Years

The Social Security Administration calculates your final benefit amount based on your earnings for the 35 years when you made the most. It then indexes your annual earnings, which is to say it adjusts for inflation, and then takes the average of the 35 indexed amounts. If you have income for less than 35 years, the SSA will give you a zero for those years short of 35.

Thats why its important to have income for at least 35 years. Those zeroes can bring down your average significantly. The government used to send out peoples annual earnings histories, but stopped in 2011 to save money. Its a good idea, though, to check periodically what the government has recorded for you so you can make any needed corrections. You can do this easily by creating an online Social Security account.

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‘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.

Higher Maximum Benefit For Top Earners

In 2022, the largest possible Social Security benefit is $4,194 per month. This figure is also set to jump next year, meaning top earners will rake in quite a bit more than they do right now. But not everyone will qualify for these large checks.

In order to claim the $4,194 benefit this year, you had to earn the equivalent of $142,800 in 2022 dollars for at least 35 years and delay claiming until age 70. In 2023 and beyond, you’ll need an even larger income during your working years to claim the highest possible benefit.

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