Social Security wage base, COLA set for 2023

By Martha Waggoner

Individual taxable earnings of up to $160,200 annually will be subject to Social Security tax in 2023, the Social Security Administration (SSA) announced Thursday.

This amount, an increase from $147,000 in 2022, is the wage base limit that applies to earnings subject to the old age, survivors, and disability insurance (OASDI) tax. The employee and the employer each will pay $9,932 in tax at the OASDI tax rate of 6.2%.

The Medicare hospital insurance tax of 1.45% each for employees and employers has no wage limit; it is unchanged for 2023.

Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly and $125,000 for married taxpayers filing separately) pay an additional hospital insurance tax under Sec. 3103(b)(2) of 0.9% of wages with respect to employment (also unchanged).

Self-employed individuals pay self-employment tax equal to the combined OASDI and Medicare taxes for both employees and employers, i.e., 12.4% of net self-employment income up to the OASDI wage base plus 2.9% in Medicare taxes on any amount of net self-employment income, with an offsetting above-the-line income tax deduction of half of the self-employment tax.

The SSA also announced on Thursday a cost-of-living adjustment (COLA) of 8.7% for both Social Security and Supplemental Security Income (SSI) benefits beginning in January 2023. The increase, based on the consumer price index, marks a trend of rising COLAs in recent years and compares with an increase of 5.9% in 2022 and 1.3% in 2021.

In 2023, retirees receiving Social Security benefits will be able to earn $56,520 in the year they reach full retirement age before their benefits are reduced by $1 for every $3 in earnings over the limit. That figure is an increase from $51,960 in 2022.

Beneficiaries younger than full retirement age can earn up to $21,240 in 2023 before their benefits are reduced by $1 for every $2 in excess earnings, up from $19,560 in 2022.

The maximum Social Security benefit for a worker retiring at full retirement age will increase to $3,627 per month in 2023 from $3,345 per month in 2022.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.

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