What is the maximum social security tax withholding for 2022

Gather round. All employees need to know at least 3 tax numbers for 2022.

Tax-return season for 2021 income has officially begun. However, don’t forget to look ahead and consider your tax planning for 2022. Key numbers in tax-law provisions are adjusted for inflation at the start of each year. Some of these adjustments are important for employees, their paychecks, and their planning.

As many tax-code sections are annually modified for inflation, it can be hard to spot the adjustments that matter to you. Some apply only to super-wealthy executives and other individuals, such as the federal exemption for estate tax (in 2022, $12.06 million for single taxpayers and $24.12 million for married joint filers). The more obscure adjustments are chiefly of interest only to administrators of corporate benefit plans and other experts (like me) who keep track of this stuff. For example, the income definition of “highly compensated employee,” which affects eligibility for employee stock purchase plans (ESPPs) and 401(k) plan non-discrimination testing, is $135,000 in 2022.

So let’s cut through the clutter and focus on the essential points. Below are the top three sets of tax figures in 2022 that all employees should know. They relate to compensation from work: paycheck withholding, the potential need for estimated taxes, and your retirement savings.

1. The Social Security Wage Base

Social Security tax (6.2%) applies to wages up to a maximum amount per year set annually by the Social Security Administration. Income above that threshold is not subject to Social Security tax. (By contrast, Medicare tax is uncapped, with a rate of either 1.45% or 2.35%, depending on your income level.)

In 2022, the Social Security wage cap is $147,000, up slightly from $142,800 in 2021. This means the maximum possible Social Security withholding in 2022 is $9,114. Once your income is over the wage cap and you’ve maxed out the withholding, you’ll see 6.2% more in your paycheck!

2. Your Income-Tax Bracket And Withholding

The table below can help you understand how an additional amount of compensation would be taxed at your marginal tax rate (i.e. the percent of tax you pay for an additional dollar of income in your current tax bracket). This number tells you whether the taxes withheld according to your information on the revised Form W-4 will cover the total tax you will owe for 2022. To avoid “penalizing” additional income in your mind, be sure you know your effective or average tax rate.

The 7 income-tax brackets in 2022.

Need To Pay Estimated Taxes?

Additional compensation received, such as a cash bonus or income from a nonqualified stock option exercise or vesting of restricted stock units, is considered supplemental wage income. For federal income-tax withholding, most companies do not use your W-4 rate. Instead, they apply the IRS flat rate of 22% for supplemental income (the rate is 37% for yearly supplemental income in excess of $1 million).

As shown by the table above, once you know your marginal tax-bracket rate, you may find the withholding rate of 22% may not cover all of the taxes that you will owe on supplemental wage income. In that case, you must either put extra money aside for the 2022 tax return you will file in 2023, pay estimated taxes during 2022, or adjust your W-4 for your salary withholding as soon as possible to cover the shortfall.

3. Your Contribution Limit For Qualified Retirement Plans

In 2022, you can elect to defer up to $20,500 from your paychecks into qualified retirement plans, such as your 401(k). That annual limit increased in 2022 from $19,500, where it had been for several years.

The total ceiling for deferrals to defined contribution retirement plans, including any extra part contributed by your employer, rose to $61,000 in 2022, a $3,000 increase over last year’s amount. If you are 50 or older, you can contribute an additional $6,500 per year.

The amount of compensation income that can be considered in the calculation for qualified deferrals rose to $305,000 in 2022. Check with your company’s 401(k) plan administrator for the process of making changes in your compensation deferral election.

Want To Defer More Income?

Look into whether your company has a nonqualified deferred compensation plan, sometimes called an excess 401(k) plan or other name. For more on these plans, see the website myNQDC.com.

IRS Resources

Here are resources with more details on the many adjusted 2022 tax numbers:

• Revenue Procedure 2021-45 gives inflation adjustments in various income-tax-related provisions.
• IRS Notice 2021-61 and an IRS table give the annual adjustments related to various tax-qualified retirement plans.

Each year the Social Security Administration unveils benefit amounts and the maximum amount of earnings that are subject to Social Security taxes based on cost-of-living increases. This formula affects how much can be withheld from employees' paychecks to pay Social Security taxes. Employers are also on the hook for their share of Social Security taxes.

Current Social Security Maximum Taxable Earnings

• The Social Security maximum taxable income for 2022 is $147,000.
• The Social Security maximum taxable income for 2023 is $160,200.
• This maximum includes both employee wages and income from self-employment.
• There is no maximum taxable income for Medicare withholding.

What Is Social Security Withholding?

The Social Security tax is a federal tax imposed on employers, employees, and self-employed individuals. It is used to pay the cost of benefits for Social Security recipients, survivors of recipients, and disabled individuals and is referred to as OASDI, or Old-Age, Survivors and Disability Insurance.

The Social Security tax is one of the payroll taxes paid by employees, employers, and self-employed individuals each year known as FICA (Federal Insurance Contributions Act) taxes. Medicare tax is the other tax in this package. There is no maximum taxable income for the Medicare tax, but there is an additional Medicare tax of 0.9% for high-income single taxpayers with earned income of more than $200,000 (and more than $250,000 for married couples filing jointly).

The Social Security tax rate for both single and married taxpayers is 2022 is 12.4%; both the employer and the employee pay 6.2% of the employee's salary. The standard Medicare rates are 1.45% for each, for a total of 2.9%. Therefore, the total FICA tax amount is 15.3%. 

Note

If you are self-employed, you must pay the full 15.3% yourself, but you can take a deduction for half this amount (the employer-equivalent portion of the tax).

Rules About Social Security Maximums

If the employee makes more than the maximum taxable income level set by the Social Security Administration, different rules regarding withholding come into effect.

Employer

The employermust withhold Social Security and Medicare taxes from employees on pay subject to Social Security, up to the maximum amount each year. They must pay Social Security taxes for each employee for earnings up to the Social Security maximum.

Employee

The Social Security cap is the maximum amount that your employer will withhold from your paychecks during the year. If you have more than one job, each employer will withhold up to the maximum.

Note

If too much Social Security tax has been withheld, you can claim a refund from the IRS of those Social Security taxes withheld that exceeded the maximum amount when you file your tax return the following year.

Self-Employed Worker

If you are self-employed, you must pay Social Security and Medicare taxes on your self-employment earnings, which are your net earnings on your business tax return. Since you are not an employee, these amounts aren't withheld during the year. You must estimate the self-employment tax and income tax you owe from business earnings and make quarterly estimated payments.

For example, if your only income in 2022 is from self-employment, and the net earnings you report on your business tax form are $145,000, your Social Security and Medicare taxes would apply to the 2022 maximum of $147,000.

Note

If you have both self-employment income and income as an employee of a company, the employee income is considered first when it comes to arriving at the Social Security maximum. If the maximum taxable amount isn't reached from your employee salary or wages alone, then your income from self-employment is added in.

FAQs

What is the maximum Social Security retirement benefit in 2022?

The maximum Social Security benefit depends on your age in 2022. If you are full retirement age when you retire, your maximum benefit is $3,345. (Your full retirement age depends on when you were born.) That amount goes up to $4,194 if you're 70 when you retire in 2022.

What is the Additional Medicare Tax?

This tax goes toward funding parts of the Affordable Care Act and charges taxpayers an additional 0.9% on all income above a certain threshold. For individuals, that threshold amount is $200,000 a year; for married couples filing jointly, it's $250,000.

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