On Oct. 13, 2021, the Social Security Administration (SSA) issued its wage cap and benefit amounts for the 2022 calendar year. Compared to 2021, both amounts have increased to account for inflation and cost-of-living adjustments (COLA). DM Payroll Solutions shares key takeaways from the newly increased amounts to prepare you for next year.

Social Security Wage Cap

Employers and employees each pay the 7.65% Federal Insurance Contributions Act (FICA) tax for wages earned. FICA is made up of:’

1. A 6.2% social security tax for old age, survivors and disability insurance (OASDI)
2. A 1.45% Medicare tax, known as hospital insurance

Self-employed workers are responsible for the entire 15.3% Self-Employment tax, which includes a 12.4% OASDI tax and a 2.9% HI tax.

Most wages and self-employment income up to that year’s wage cap are susceptible to the OASDI tax. For 2022, the base is $147,000, meaning the OASDI tax only applies to a taxpayer’s first $147,000 earned. Individuals do not pay OASDI tax on earnings greater than the wage cap. The HI tax doesn’t have its own wage cap.

2022 Social Security Tax Amounts

Workers with more than $147,000 in earnings in 2022 must pay $9,114 in social security tax (the $147,000 cap x 6.2%) with their employers paying the same amount. Self-employed individuals must pay $18,228 in social security tax ($147,000 x 12.4%).

The Additional Medicare Tax

High-earning taxpayers will also have to pay the 0.9% Additional Medicare Tax, which applies to wages or self-employment earnings more than $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately and $200,000 for other filers. The annual wage cap does not affect the Additional Medicare Tax.

Increased Benefits for 2022

Finally, a COLA will increase Social Security and Supplemental Security Income (SSI) benefits by 5.9% next year. The COLA ensures that inflation will not lessen the purchasing power of these benefits.

Employers – start preparing for these increases today to avoid penalties for both you and your employees. If you need assistance streamlining your payroll system to account for these increased amounts, contact DM Payroll Solutions today.