Before 2022 ends, several changes in the collection of taxes were announced, which will be implemented starting in January 2023. One of the changes is the increase in Social Security tax. The agency has announced that the tax is expected to increase by 6.2% for most employees, while most employers are expected to pay 12.4%. The increase is nearly 9% from last year, meaning workers have to pay $160,200 from $147,000 in 2022. Furthermore, workers who earn more than $160,200 will have to pay an additional $818 in taxes.
Social Security tax to increase up to 6.2% (Photo: More than Money, Inc.)
On the other hand, the agency also announced the mechanism regarding the earnings test. The Earning Test will be applied to a beneficiary who applied for Social Security and still earning income, but has not reached the maximum retirement age of 66 to 67. Furthermore, the benefits will be withheld once the earnings exceed the threshold. The earning test will disappear once the worker reaches the full retirement age.
For instance, if a worker earned more than $21,240 before, Social Security withheld $1 in benefits for every $2 earned over that amount. If the worker reaches retirement age in 2023 and still earns up to $56,520, Social Security will withhold $1 in benefits for every $3 earned over the limit. Once the worker reaches the full retirement age, the earnings test will disappear. The agency has also clarified that the benefits are not lost forever. When the worker reaches the full retirement age, the monthly benefit amount will be adjusted to account for the forfeited benefits.
The increase in Social Security tax is aimed at mitigating the possibility of depleting the agency’s funds. According to the Social Security boards of trustees, it is projected that the fund will last until 2035 unless lawmakers implement a system to control the issue. The increase in the cost-of-living adjustment (COLA) of up to 8.7% also threatens earlier fund depletion. However, the agency has clarified that COLA is not the cause of the problem but the low amount of taxes collected and the agency’s promised benefits.
Hence, the agency reasoned that the tax increase was necessary to earn revenue and continue the program. If the fund is depleted, the agency has ensured that the program has enough money to pay an estimated 77% of promised benefits.
