The majority of Americans in the United States either contribute to Social Security or receive benefits from it. Changes to the program could affect almost every household.
According to the Social Security Administration, many of these changes will take place in 2022. These are three changes that will be made to the benefits program in the new year.
1. Seniors will receive larger checks
Retirees are entitled to a cost-of-living adjustment (COLA), which increases their checks in most years. This will continue to be true in 2022. Seniors will receive the highest COLA in 40-years and a 5.9% increase in benefits.
The average Social Security benefit for all retirees will rise from $1,565 to $1,657 by 2021 to 2022. It's great news for seniors that they will receive this additional money to ensure their benefits don’t lose purchasing power. However, retirees shouldn’t get too excited about it as the increase in inflation is so significant.
Retirees need to budget carefully in order to cover rising costs and make the most of larger checks.
2. Retirees are able to work longer without losing their benefits
Each retiree has a full retirement date (FRA), which is between 66-four months and 67 next year. You can still claim retirement benefits if you are at least 62 years old if you have not yet reached your FRA. However, this would reduce your monthly checks.
If you are receiving benefits prior to FRA, there is a caveat. You can lose some Social Security income if you work or earn too much at your job. One change is coming next year that will allow retired people to make a little more without losing their Social Security checks.
Older workers who didn't reach FRA during the year 2021 were permitted to earn $18,960 before losing $1 for each $2 of excess earnings. This amount will rise to $19,560 in 2022. For those who reach FRA in the year, the earnings limit is $50,520. After that, benefits will be reduced by $1 per $3. This will rise to $51,960 by 2022.
3. Social Security taxes will be more expensive for some workers than others.
The majority of current workers pay Social Security taxes on the income they earn, but not all do. Earnings above the "wagebase" limit are subject to Social Security taxes. Any earnings above the wage base limit are not subject to tax or counted in retirement benefits calculations.
In 2022, the wage base limit will change. This means that some high-earners will be subject to higher Social Security taxes. The maximum social security taxable wage in 2021 was $142,800. It will rise to $147,000 by 2022. Workers could be subject to an additional tax of $321.30 due to the 7.65% Social Security Tax that employees must pay. Self-employed can pay twice that amount because they don't have an employee to pay half of their Social Security tax. They could end up paying $642.60 more in taxes over the course a year.
Current and future retirees should be aware of these changes to ensure they are ready for any changes in their tax bills or benefits checks.