2022 Wage Cap Jumps to $147,000 for Social Security Payroll Taxes
By year-end, adjust payroll systems and notify affected employees
Starting Jan. 1, 2022, the maximum earnings subject to the Social Security payroll tax will increase by $4,200 to $147,000—up from the $142,800 maximum for 2021, the Social Security Administration (SSA) announced Oct. 13. The SSA also posted a fact sheet summarizing the 2022 cost of living adjustments (COLAs).
The taxable wage cap is subject to an automatic adjustment each year based on increases in the national average wage index (not the inflation rate), calculated annually by the SSA.
Payroll Taxes: Cap on Maximum Earnings | ||
Type of Payroll Tax | 2022 Maximum Earnings | 2021 Maximum Earnings |
Social Security | $147,000 | $142,800 |
Medicare | No limit | No limit |
Source: Social Security Administration. | ||
The growth of the Social Security wage cap from $127,200 in 2017 to 147,000 in 2022 represents more than a 15.5 percent increase over the past five years.
The $4,200 increase for 2022, however, is smaller than the 2021 increase of $5,100, up from the $137,700 maximum for 2020, reflecting constraints on wage increases during the height of the COVID-19 pandemic.
FICA Rates
Social Security and Medicare payroll taxes are collected together as the Federal Insurance Contributions Act (FICA) tax. FICA tax rates are statutorily set and can only be changed through new tax law.
Social Security is financed by a 12.4 percent payroll tax on wages up to the taxable earnings cap, with half (6.2 percent) paid by workers and the other half paid by employers. Self-employed workers pay the entire 12.4 percent.
For employers and employees, the Medicare payroll tax rate is a matching 1.45 percent on all earnings (self-employed workers pay the full 2.9 percent), bringing the total Social Security and Medicare payroll withholding rate for employers and employees to 7.65 percent—with only the Social Security portion limited to the taxable maximum amount.
| FICA Rate (Social Security + Medicare Withholding) | |
| Employee | 7.65% (6.2% + 1.45%) |
| Employer | 7.65% (6.2% + 1.45%) |
| Self-Employed | 15.3% (12.4% + 2.9%) |
| Note: For employed wage earners, their Social Security portion is 6.2% on earnings up to the taxable maximum. Their Medicare portion is 1.45% on all earnings. | |
The payroll tax rates shown above do not include an additional 0.9 percent in Medicare taxes paid by highly compensated employees on earnings that exceed threshold amounts based on their filing status:
- $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 wage thresholds, set by law, do not adjust for inflation and therefore apply to more employees each year.
Employers must withhold the additional Medicare tax from wages of employees earning more than $200,000 in a calendar year.
Adjust Systems, Notify Employees
Employees whose compensation exceeds the current 2021 taxable earnings cap of $142,800 may notice a slight decrease in net take-home pay beginning next January due to the payroll tax adjustment.
By the start of the new year, U.S. employers should:
- Adjust their payroll systems to account for the higher taxable wage base under the Social Security payroll tax.
- Notify affected employees that more of their pay will be subject to payroll withholding.
Social Security Earnings Test COLA Workers can start to collect Social Security retirement benefits as early as age 62, but their monthly payment will be lower than if they wait until their normal retirement age—age 66 for people born in 1943 through 1954. The retirement age gradually increases by a few months for every birth year, until it reaches 67 for people born in 1960 and later. Those who collect Social Security before their full retirement age but continue to earn income will have their monthly benefits reduced if their earnings exceed an annually adjusted earnings test limit. The SSA announced that:
There is no limit on earnings under this test for workers who have reach or passed their full retirement age for the entire year. |
Inflation Impacts Benefits Payments
Monthly Social Security and Supplemental Security Income benefits for more than 64 million people in the U.S. will increase by 5.9 percent in 2022—the biggest cost-of-living adjustment since the 1980s—the SSA also announced, reflecting this year's inflation spike. The adjustment will boost the average monthly retirement benefit by $92 to roughly $1,657.
The Senior Citizens League, an advocacy group, called the benefits increase "the highest COLA that most beneficiaries living today have ever seen," but added that "a high COLA means exceptionally high inflation is impacting consumers."
[Updates]
Monthly premiums for Medicare Part B, which covers doctor visits and other outpatient services, such as lab tests and diagnostic screenings, will increase to $170.10 in 2022, up from $148.50 in 2021, an increase of $21.60, the Centers for Medicare & Medicaid Services announced on Nov. 12. For most Social Security recipients, Part B premiums are deducted from their Social Security benefits.
2022 Income Tax Brackets
The IRS issued income tax bracket adjustments for tax year 2022 in Revenue Procedure 2021-45, released on Nov. 10, 2021.
"Due to increases in consumer prices, all of the tax bracket thresholds and other key tax-code parameters are rising faster than usual," The Wall Street Journal reported on Nov. 11. The changes "will affect paycheck withholding and quarterly estimated taxes during 2022 and will be reflected on tax returns filed in early 2023."
The level of income that is subject to a higher tax bracket can influence a number of decisions by employees, including how much salary to defer into a traditional 401(k) plan or into an HSA, which reduces taxable income for a given year by the amount contributed, or whether to participate in a nonqualified deferred income plan, if that option is available through the employer.
A comparison of income tax rates and ranges for 2021 and 2022 follows below. The 2022 rates are effective Jan. 1, and remain in effect through 2022 unless Congress passes new tax legislation.
Single Filing Individual Return (other than surviving spouses and heads of households)
| Tax Rate | 2021 Taxable Income | 2022 Taxable Income |
| 10% | $0 to $9,950 | $0 to $10,275 |
| 12% | Over $9,500 to $40,525 | Over $10,275 to $41,775 |
| 22% | Over $40,525 to $86,375 | Over $41,775 to $89,075 |
| 24% | Over $86,375 to $164,925 | Over $89,075 to $170,050 |
| 32% | Over $164,925 to $209,425 | Over $170,050 to $215,950 |
| 35% | Over $209,425 to $523,600 | Over $215,950 to $539,900 |
| 37% | Over $523,600 | Over $539,900 |
Married Filing Jointly (and surviving spouse)
| Tax Rate | 2021 Taxable Income | 2022 Taxable Income |
| 10% | $0 to $19,900 | $0 to $20,550 |
| 12% | Over $19,900 to $81,050 | Over $20,550 to $83,550 |
| 22% | Over $81,050 to $172,750 | Over $83,550 to $178,150 |
| 24% | Over $172,750 to $329,850 | Over $178,150 to $340,100 |
| 32% | Over $329,850 to $418,850 | Over $340,100 to $431,900 |
| 35% | Over $418,850 to $628,300 | Over $431,900 to $647,850 |
| 37% | Over $628,300 | Over $647,850 |
Married Filing Separate Returns
| Tax Rate | 2021 Taxable Income | 2022 Taxable Income |
| 10% | $0 to $9,950 | $0 to $10,275 |
| 12% | Over $9,950 to $40,525 | Over $10,275 to $41,775 |
| 22% | Over $40,525 to $86,375 | Over $41,775 to $89,075 |
| 24% | Over $86,375 to $164,925 | Over $89,075 to $170,050 |
| 32% | Over $164,925 to $209,425 | Over $170,050 to $215,950 |
| 35% | Over $209,425 to $314,150 | Over $215,950 to $323,925 |
| 37% | Over $314,150 | Over $323,925 |
Heads of Households
| Tax Rate | 2021 Taxable Income | 2022 Taxable Income |
| 10% | $0 to $14,200 | $0 to $14,650 |
| 12% | Over $14,200 to $54,200 | Over $14,650 to $55,900 |
| 22% | Over $54,200 to $86,350 | Over $55,900 to $89,050 |
| 24% | Over $86,350 to $164,900 | Ove r$89,050 to $170,050 |
| 32% | Over $164,900 to $209,400 | Over $170,050 to $215,950 |
| 35% | Over $209,400 to $523,600 | Over $215,950 to $539,900 |
| 37% | Over $523,600 | Over $539,900 |
Revenue Procedure 2021-45 also states that among other income tax adjustments for 2022:
- The standard deduction for single taxpayers and for married taxpayers filing separately rises by $400 to $12,950, up from $12,550.
- The standard deduction for married taxpayers filing joint returns rises by $800 to $25,900, up from $25,100.
- The standard deduction for heads of household rises by $600 to $19,400, up from $18,800.
Related SHRM Articles:
2022 Benefit Plan Limits & Thresholds Chart, SHRM Online, November 2021
2022 Health FSA Contribution Cap Rises to $2,850, SHRM Online, November 2021
For 2022, 401(k) Contribution Limit Rises to $20,500, SHRM Online, November 2021
IRS Announces 2022 Limits for HSAs and High-Deductible Health Plans, SHRM Online, May 2021
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