2022 Wage Cap Jumps to $147,000 for Social Security Payroll Taxes

By year-end, adjust payroll systems and notify affected employees

Stephen Miller, CEBS By Stephen Miller, CEBS October 13, 2021
LIKE SAVE
2022 Wage Cap Jumps to $147,000 for Social Security Payroll Taxes

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)
Employee7.65%
(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, for instance.

The full retirement age increases to 66 and 4 months in 2022 for people who were born in 1956.

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:

  • For those collecting benefits in 2022 before their full retirement age, the SSA will deduct $1 from their monthly benefits for each $2 earned over $19,560 per year (or $1,630 per month)—up from $18,960 per year (or $1,580 per month) in 2021.
  • For those reaching their full retirement age in 2022, the SSA will deduct $1 from their monthly benefits for each $3 earned over $51,960 per year (or $4,330 per month) until the month in which the worker reaches full retirement age—up from $50,520 per year (or $4,210 per month) in 2021.

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 $164,925Over $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%Ove r$54,200 to $86,350Over $55,900 to $89,050
24%Over $86,350 to $164,900
Ove r$89,050 to $170,050
32%
Over $164,900 to $209,400Over $170,050 to $215,950
35%
Over $209,400 to $523,600Over $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

LIKE SAVE

SHRM HR JOBS

Hire the best HR talent or advance your own career.

Salary Increase Projections for 2022

Pay raises in the U.S. are returning to pre-pandemic levels but rising prices mean higher salaries aren't likely to keep pace with inflation.

Pay raises in the U.S. are returning to pre-pandemic levels but rising prices mean higher salaries aren't likely to keep pace with inflation.

VIEW RESOURCES

SPONSOR OFFERS

HR Daily Newsletter

News, trends and analysis, as well as breaking news alerts, to help HR professionals do their jobs better each business day.