It is that time of year to discuss the changes announced by the Social Security Administration for 2022. The first notable update is the OASDI tax. The Old-Age, Survivors, and Disability Insurance (OASDI) program or most commonly referred to as Social Security, limits the amount of earnings that are subject to taxation each year. For 2022, the taxable maximum is $147,000. This is an increase compared to last year as the maximum for 2021 was $142,800. 

For 2022, the OASDI tax rate for wages paid is 6.2% for employees and employers. This means that employees that are at or above the maximum, $147,000, will be responsible for paying $9,114 in taxes. These individuals’ employers will also be responsible for paying the same amount in taxes. Under federal law, employers are required to deduct 6.2% from their employee’s wages and must pay an equal amount themselves. 

Another payroll tax that business owners should be mindful of is the Medicare hospital insurance tax. This tax is also imposed on employees and employers. For 2022, the tax has remained unchanged and will be 1.45%. It is important to note that individuals who earn more than $200,000 must pay an additional hospital insurance tax of 0.9%. This also applies to married couples filing jointly with a combined income of $250,000 and for married taxpayers filing separately with an income more than $125,000 each. 

For those who are self-employed, you will be responsible for paying a self-employment tax that is equal to the combined OASDI and Medicare taxes for both employers and employees. This means the self-employment tax rate is 15.3% which consists of the 12.4% for social security and 2.9% for Medicare. 

Each year the Social Security Administration also announces changes to the cost-of-living adjustment. This helps those who are receiving social security benefits and payments keep up with the changes in the cost of living. This calculation is based on the changes in the consumer price index. The adjustment amount that will be used for benefits payable in 2022 is 5.9% which is a big increase from last year’s 1.3%. 

Prior to 2022, the annual amount that retirees receiving Social Security benefits could earn in the year they reach retirement age before benefits were reduced was $50,520. For the new year, this amount has increased to $51,960. If a retiree earned more than this amount then their benefits would be reduced by $1 for every $3 over the limit. Also, those beneficiaries that are younger than full retirement age can earn up to $19,560 for 2022 which is an increase from $18,960 for 2021. If these individuals were to earn more than the maximum income then their benefits would be reduced by $1 for every $2 over the limit. Another change that occurred for 2022 is the maximum Social Security benefit provided to workers who have reached full retirement age. For 2021 the benefit per month was $3,148 and the increase for the new year is $3,345. 

If you have any questions on how these will affect your personal taxes, be sure to ask your CPA about these changes. And if you need help to understand your tax liability as an employer, reach out to use at 310-534-5577 or [email protected].

https://www.journalofaccountancy.com/news/2021/oct/ssa-2022-tax-wage-base-benefit-cola.html

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