Some people aren't taxed on every dollar they make, and they aren't given credit for all of their earnings when calculating their benefits. This is mainly because of the payroll tax limit. What’s the social security payroll tax limit for 2022?
What's the social security payroll tax limit?
The social security payroll tax limit is the maximum amount of income subject to social security tax. The limit is set annually and adjusted for inflation. If this restriction didn’t exist, a person earning millions of dollars annually might get tens of thousands of dollars in social security benefits each month.
Social security payroll tax limit for 2021
For 2021, the social security payroll tax limit is $142,800. This means that both employers and workers must pay a 6.2 percent social security tax on gross annual wage up to $142,800 for the 2021 tax year. When employees' salaries exceed this limit, the employer should no longer deduct social security taxes from their wages.
Employers also don’t have to pay any social security taxes on salaries in excess of that amount. As a result, you'll see an increase in your paycheck. The maximum social security tax an employee would pay is $8,853.60.
Self-employed workers must pay the full 12.4 percent social security tax. They're still subject to the payroll tax limit, but the maximum social security tax they must pay each year is higher, as they must pay the whole amount themselves. The maximum social security tax a self-employed worker would pay is $17,707.20.
Social security payroll tax limit for 2022
The rise in the social security payroll tax threshold from $127,200 in 2017 to $147,000 in 2022 indicates a 15.6 percent increase over the last five years. However, the $4,200 rise for 2022 is less than the $5,100 increase for 2021. For 2020, the social security payroll tax limit was $137,700.
How much will social security benefits go up in 2022?
In 2022, social security beneficiaries will get a slightly higher payment. In Oct. 2021, the cost-of-living adjustment (COLA) was increased by 5.9 percent for 2022, compared with a 1.3 percent rise in 2021. Beginning in Jan. 2022, the Social Security Administration (SSA) estimates that the average monthly benefit for all retired employees will be $1,657.
That's a significant increase above the current average monthly payout of $1,565, meaning retirees will get around $100 more every month and $1,200 annually as part of the COLA increase. The SSA's projections are based on the average payment.
Medicare doesn’t have a payroll tax limit
Medicare tax has no payroll tax limit, which implies that all of an employee’s annual salary is subject to this tax. Employers and employees must each contribute 1.45 percent.