Social Security 2022: How Taxable Income Will Increase in Relation to COLA
Retirees who remember what it was like to pay more income taxes for higher earnings will get a reminder of that next year, as the 5.9% increase in Social Security payments will be accompanied by a higher income tax obligation.
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The 5.9% cost-of-living adjustment for 2022 Social Security payments is the biggest since 1982 and was implemented to help retires deal with spiraling inflation, which has been clocking in at 6%-plus.
If you collect Social Security but still earn money through part-time work, freelance work, a side hustle or some other means, you might face a higher income tax bill along with the higher Social Security check.
As AARP recently reported, if you earn money and collect Social Security retirement benefits before you reach full retirement age, the Social Security Administration may withhold $1 in benefits for every $2 in earnings that exceed the income threshold. In 2021, the threshold was $18,960 a year. That threshold will rise to $19,560 a year in 2022.
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During the year you reach full retirement age, the SSA will withhold $1 for every $3 you earn above the limit. That limit was $50,520 a year in 2021 and will increase to $51,960 a year in 2022. The SSA stops withholding money the month you reach full retirement age.
As AARP noted, Social Security is funded by a 6.2% tax on employees, which is matched by a 6.2% tax from employers, with self-employed individuals paying a 12.4% combined tax. Those rates won’t be changing in 2022, but the amount of income subject to the tax will rise in line with the COLA.
In 2021, you paid Social Security tax on up to $142,800 of taxable earnings. That limit will increase to $147,000 in 2022.
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