global Tax SSA Announces Social Security Wage Base and Benefit Changes for 2023 October 18, 2022 Attention taxpayers…starting January 1, 2023, the social security wage cap will jump to $160,200 for payroll taxes. Additionally, social security benefits will increase for retirees. Here are the details. The Social Security Administration (SSA) has announced that the maximum earnings subject to the social security payroll tax will increase by almost 9 percent in 2023. Here’s what you should know about the increase. What is the wage cap? Every year, the taxable wage cap is adjusted based on increases in the national average wage index, which is calculated annually by the SSA. Due to the recent surge in inflation, the wage increases have been determined earlier than usual. What is the new maximum earnings cap for payroll taxes? Payroll Tax2023 Maximum Earnings2022 Maximum EarningsSocial Security$160,200$147,000MedicareNo limitNo limit So, for 2023 employers must withhold the following amounts: 6.2% Social Security tax on the first $160,200 of employee wages (maximum tax is $9,932.40; i.e., 6.20% × $160,2001.45% Medicare tax on all employee wages2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all employee wages in excess of $200,000. Have the FICA rates changed? Medicare and social security taxes are collected together, under the umbrella of the FICA (Federal Insurance Contributions Act) tax. Starting January 1, 2023, here are the rates: FICA Rate (Social Security + Medicare)Employee7.65%(6.2% + 1.45%)Employer7.65%(6.2% + 1.45%)Self-Employed15.3%(12.4% + 2.9%) Highly compensated employees pay an additional 0.9 percent in Medicare taxes (based on their filing status) on earnings that exceed the following threshold amounts: $250,000 for married taxpayers who file jointly. $125,000 for married taxpayers who file separately. $200,000 for single and all other taxpayers. These amounts are not adjusted for inflation. Make note that if your employees earn more than $200,000 in a calendar year, you must withhold the additional Medicare tax from their wages. Any social security changes for retirees? Also starting January 1, 2023, monthly Social Security and Supplemental Security Income benefits for retirees will jump by 8.7 %— marking the biggest cost-of-living adjustment in over 40 years. Accordingly, starting in January, the average monthly retirement benefit will increase by more than $140. 20232022Average monthly Social Security benefit$1,827$1,681Maximum federal SSI monthly payment to an individual$914$841Maximum federal SSI monthly payment to a couple$1,371$1,261Earnings required to be credited with a quarter of social security coverage$1,640$1,510 What about those who continue working while collecting Social Security benefits? Social security beneficiaries under the full retirement age (between 65-67) who are still working receive a reduced monthly benefit if they earn more than the annually adjusted threshold. For 2023, $1 in benefits will be withheld for every $2 in earnings above $21,240 (increase from $19,560 in 2022). Those impacted by this who will reach retirement age in 2023 will have $1 in benefits withheld for every $3 in earnings exceeding $56,520 (up from $51,960) until the month they reach normal retirement age (NRA). Beyond that month, there is no limit. What to do to prepare for the increase If you have employees whose earnings exceed the current 2022 cap of $147,000, you will want to notify them that they may have a slightly lower net take home pay due to the increase. Before January 1, be sure to: Modify your payroll systems to account for the higher taxable wage baseAlert impacted employees that more of their pay will be subject to payroll withholding Questions? We’d be happy to help. Contact us today.