Millions of seniors routinely depend on Social Security to cover their living costs in retirement. If you're nowhere close to reaching that stage of life, you may not pay such close attention to the changes the program undergoes.
But actually, it's important to keep tabs on Social Security even if you're not ready to stop working anytime soon. Here are a few 2022 updates you should know about.
1. The wage cap increased
Social Security gets the bulk of its revenue from payroll taxes. In fact, a big reason benefit cuts are a real possibility is that in the coming years, Social Security expects a major hit to its payroll tax revenue as baby boomers exit the labor force in droves.
But Social Security doesn't tax all earnings. Rather, there's a wage cap each year that limits the extent to which payroll taxes apply.
Last year, the wage cap sat at $142,800. This year, it's up to $147,000, so those earning that much money or more will pay taxes on an additional $4,200 of income.
Now, it's worth noting that some advocacy groups and lawmakers are pushing to have the wage cap raised or eliminated. As it stands, lower earners commonly pay Social Security taxes on all of their income, while higher earners often pay Social Security taxes on just a small percentage of their income. Lifting or getting rid of the wage cap could help pump more money into Social Security -- and prevent benefit cuts.
2. The value of work credits rose
Social Security benefits aren't guaranteed. Rather, they're earned by working and paying Social Security taxes.
To qualify for benefits takes a minimum of 40 lifetime work credits. Workers can accrue up to four work credits per year, and the value of a work credit changes annually.
Last year, a work credit was worth $1,470 of earnings. This year, it takes $1,510 of earnings to earn a credit.
Full-time workers shouldn't have an issue earning their four credits per year -- even those who make minimum wage earn enough to meet these thresholds. It's part-time employees, rather, who should pay attention to the value of work credits in particular.
3. The earnings-test limits went up
Social Security allows seniors to work and receive benefits at the same time. Once full retirement age (FRA) arrives, earnings don't have an impact on benefits. Before FRA, there's an earnings-test limit workers have to pay attention to.
In 2021, workers could earn $18,960 without affecting their benefits. This year, that limit has gone up to $19,560. Earnings beyond that point result in having $1 in Social Security withheld per $2 of income.
The rules are different for workers reaching FRA. Last year, the earnings-test limit for seniors reaching FRA was $50,520. This year, it's $51,960. Earnings beyond $51,960 result in having $1 in Social Security withheld for every $3 of income.
Know the rules
Whether you're collecting Social Security or not, it pays to know about the changes the program undergoes. You may be surprised at how much they end up affecting you.