Social Security Benefits Are Going Way Up in 2022

The Social Security Administration announced that retirees will receive a 5.9% increase in their Social Security benefits in January of 2022.  This is the largest annual increase in benefits in nearly 40 years as the price of food, cars, housing, and other goods and services has risen in the past year. Seventy million Americans receive Social Security, and this comes as welcome news in this inflationary environment.

However, the cost of medical care has also increased, and Medicare Part B premiums will also be rising.  The standard cost of Medicare Part B, which applies to taxpayers with income less than $88,000 or $176,000 for a married couple, is scheduled to increase $10 per month to $158.50.  Most Americans who receive Social Security benefits and are also enrolled in Medicare Part B pay their premiums as a reduction in their Social Security benefits.

For those still working, the Social Security wage base will be increased from $142,800 in 2021 to $147,000 in 2022, an increase of only 2.9%.  The wage base is the amount of wages or self-employment income that is subject to Social Security taxes.  After a worker has surpassed that amount of income in a year, the tax no longer applies to additional earnings.  This lower increase on the wage base is a result of lower increases in wages compared to consumer costs.

The Social Security and Medicaid tax rates remains the same in 2022.  They are 6.2% for Social Security and 1.45% for Medicaid for both employees and employers.  For self-employed individuals, the self-employment tax rate of 15.3% covers both the employee and employer sides of the taxes.

Some workers elect to receive Social Security benefits and keep working before their Full Retirement Age. Their income limit in 2022 will be increased from $18,960 per year ($1,580/mo) to $19,560 per year ($1,630/mo).  Any earned income above these amounts will result in a penalty that will reduce the amount of Social Security benefits they receive.  If 2022 is the year a worker attains their Full Retirement Age, they are allowed to earn $51,960 next year before their benefits are subject to a penalty.  This would apply to workers who were born in parts of 1955 and 1956.

For most retirees, Social Security is a crucial component of their overall retirement plan.  The decision of when to start benefits is an important part of retirement planning.  We would be happy to help you with this important decision.