Social Security Wage Base and Earnings Test Amounts: What You Need to Know for 2023
The Social Security Administration (SSA) recently announced that the wage base for computing Social Security tax will increase for 2023 to $160,200. This is up from $147,000 for 2022.
Federal law limits the amount of earnings that are subject to the Old-Age, Survivors, and Disability Insurance (OASDI) tax in a given year. This threshold, referred to as the Social Security wage base, means that if you earn more than $160,200, you won’t pay OASDI tax on the amount above that.
Workers will continue to be taxed at the 6.2% OASDI tax rate on wages up to this base amount.
Adding It Up
In addition, employees must pay Medicare tax on all wages. For 2023, an employee will pay:
- 6.2% Social Security tax on the first $160,200 of wages, making the maximum tax $9,932.40 (6.20% times $160,200), plus
- 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
- 2.35% Medicare tax (regular 1.45% Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).
The Social Security and Medicare tax rates for self-employed individuals are doubled. However, these taxpayers can deduct half of these employment tax payments on their federal income tax returns to arrive at adjusted gross income
For 2023, self-employed people will pay:
- 12.4% Social Security tax on the first $160,200 of self-employment income, plus
- 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return and $125,000 on a separate return) plus
- 3.8% (2.90% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return and $125,000 for married taxpayers filing a separate return).
The SSA also announced that Social Security and Supplemental Security Income (SSI) benefits will increase by 8.7% in 2023. The average monthly Social Security benefit will increase from $1,681 to $1,827, and the maximum federal SSI monthly payment to an individual will increase from $841 to $914. The maximum federal SSI monthly payment to a couple will increase from $1,261 to $1,371 in 2023.
Social Security earnings test amounts go up for 2023
The Social Security program allows workers to start receiving benefits as soon as they reach age 62 or to put off receiving benefits until age 70.
“Full retirement age” is when individuals become eligible to receive 100% of their Social Security benefits. Those born in 1942 or before were eligible for full Social Security benefits at age 65. For those born between 1943 and 1960, full retirement age increases incrementally until it reaches 67. For example, individuals born in 1955 can receive 100% of their benefits at age 66 years and 2 months.
Starting Social Security benefits before reaching your full retirement age brings into play the so-called “earnings test,” which limits the amount you can earn while collecting Social Security benefits.
If you’re under the federal retirement age, the limit is $21,240 for 2023 (up from $19,560 for 2022). This means that for every $2 over this limit, you must forfeit $1 in benefits. For individuals who reach the federal retirement age in 2023, the earnings limit is $56,520 for the months before you reach your federal retirement age (up from $51,960 in 2022). In this case, $1 in benefits must be forfeited for every $3 over the limit. Starting in the month you reach your federal retirement age, your Social Security benefits won’t be reduced no matter how much you earn.
If you have questions about Social Security tax or benefits and how they affect you, contact us.
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