This week the Social Security Administration announced the Social Security changes going into 2023.
Among the most important of the changes is the Individual taxable earnings subject to Social Security tax for individuals. Taxable earnings have increased to $160,200 annually in 2023 compared to $147,000, in 2022. This amount is the same wage base limit that applies to the old age, survivors, and disability insurance (OASDI) tax. Employees and employers both pay the OASDI tax rate of 6.2% resulting in $9,932 in tax.
The Medicare hospital insurance tax for 2023 remains unchanged. It has no wage limit and is 1.45% each for employees and employers. Additionally, the hospital insurance tax is also unchanged. As a recap, it is required from individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly and $125,000 for married taxpayers filing separately) under Sec. 3103(b)(2). This accounts for 0.9% of wages with respect to employment.
As for those who are self-employed, they will be required to pay the self-employment tax. This tax is equal to the combined OASDI and Medicare taxes for both employees and employers and amounts to 12.4% of net self-employment income. This comes from the OASDI wage base tax plus 2.9% for Medicare taxes on any amount of net self-employment income. Thankfully this can be offset with an above-the-line income tax deduction of half of the self-employment tax.
The SSA also reported an 8.7% cost-of-living adjustment (COLA) for Social Security and Supplemental Security Income (SSI) benefits starting in January 2023. The COLA benefits have been steadily increasing and this year marks a trend of rising COLAs from 1.3% in 2021 and 5.9% in 2022 to 8.7% in 2023.
Regarding retirees that receive Social Security benefits, they will be able to earn $56,520, $4,560 more than in 2022, when they reach full retirement age. This is before their benefits are reduced by $1 for every $3 in earnings over the limit. As for beneficiaries younger than full retirement age, they can earn up to $21,240, before their benefits are reduced by $1 for every $2 in excess earnings. This is an increase from $19,560 in 2022. Lastly, the maximum Social Security benefit for a retiree at retirement age will increase to $3,627 per month in 2023 from $3,345 per month in 2022.