The Social Security taxable wage base will be going up for 2023.
Next year, $160,200 of an employee’s earnings will be subject to Social Security tax. That’s $13,200 higher than the 2022 wage base, which is $147,000.
The 6.2% tax rate won’t change. So, for each employee who earns $160,200 or more, Payroll will withhold $9,932.40. Plus, your company will pay $9,932.40 for the employer portion of Social Security tax.
Compare that to the current year – the employee and employer portion is a maximum of $9,114 in 2022.
Social Security tax is one part of the 7.65% FICA tax. The other part? Medicare tax, set at a rate of 1.45%, with no taxable wage base.
Meanwhile, the Additional Medicare Tax is waiting in the wings each year. The 0.9% tax is assessed on an individual’s earned income that exceeds $200,000 – or $250,000 for married couples filing jointly. Unlike with FICA tax, there’s no employer portion with the Additional Medicare Tax.
Biggest inflation adjustment in decades
The Social Security Administration (SSA) also announced its benefits cost-of-living adjustment (COLA) on October 13, 2022. As expected given the high rate of inflation, retirees will see an 8.7% increase in the amount of their monthly benefit. In fact, the 2023 jump will be the most significant one since 1981.
One question CFOs may be asking is: What effect, if any, will the 2023 COLA have on retirees who are currently in the workforce or those who’ve considered “unretirement”?
According to an August survey from the American Staffing Association, 31% of retirees said continued inflation would be motivation for rejoining the workforce. For 25%, that motivation would come if their Social Security benefits no longer covered their expenses.
The survey also showed that 14% of respondents are open to or actively looking for work.
It remains to be seen how well the benefits boost will cover expenses and whether many retirees will be searching for employment in the coming months.
Workers who receive retirement benefits
Some workers may opt to work while receiving retirement benefits. SSA released some key information related to that. The following amounts don’t affect the taxes Payroll will need to withhold, but here’s how much employees can earn per year before SSA reduces their benefits amount:
- $21,240 for employees reaching full retirement age after 2023, and
- $56,520 for those reaching full retirement age in 2023, up until their birthday month. After that, there’s no reduction in benefits.
Meanwhile, some employees who’ve reached retirement age might choose to delay receiving benefits from SSA. In that case, they’d earn credits (until age 70) and increase their benefit amount.
Don’t forget, the full retirement age varies depending on year of birth. For example, it’s 66 and four months for someone born in 1956. It’s 67 for someone born in 1960.
New legislation on retirement
Also keep an eye out for new legislation – retirement has been a hot topic lately. The Setting Every Community Up for Retirement Enhancement (SECURE) Act is one example.
The SECURE Act increased the age for taking required minimum distributions from 401(k) plans and other plans your company may offer. That age exceeds the full retirement age as defined by SSA.