Although Social Security has been around for years, the program is constantly evolving. And now, workers and seniors alike should prepare for a number of changes that are set to take place in 2022. Here are a few specific ones that may impact you.
1. The average monthly benefit is rising
Right now, the average senior on Social Security collects a monthly benefit of $1,565. Next year, the average monthly benefit is expected to rise to $1,657 once a 5.9% cost-of-living adjustment is implemented. To be clear, that's the largest raise seniors have seen in years, and it could help many beneficiaries better manage their living costs.
That said, there's one variable that could come into play, and it's the cost of Medicare Part B premiums. Right now, the standard monthly Part B premium is $148.50 (though higher earners pay more). If that number rises substantially in 2022, it will eat into that higher benefit, since those premium costs are deducted from Social Security payments directly.
2. Work credits will be harder to earn
To qualify for Social Security in retirement, you need to earn enough work credits in your lifetime. The value of a work credit can change from year to year. Right now, it's $1,470. In 2022, it will be increasing to $1,510. What this means is that you'll need to earn more money next year to set yourself up for future benefits.
The maximum number of work credits you can earn in a single year is four. If you work full-time, this change most likely will not affect you at all. Even at today's minimum wage, working 40 hours a week for 50 weeks a year will allow you to snag four credits in 2022. But if you work part-time, you may need to put in more hours if your goal is to accumulate four work credits for 2022.
3. More wages will be taxed for Social Security purposes
Higher earners don't necessarily pay taxes on all of their Social Security income. Each year, there's a wage cap that's put into place, and earnings beyond that threshold aren't subject to Social Security taxes.
In 2021, wages above $142,800 are exempt from those taxes. But in 2022, the wage cap is rising to $147,000. This means that higher earners who are salaried employees could end up paying an additional $260.40 in Social Security taxes next year. That's because the current tax rate for Social Security is 12.4%, and for salaried workers, that tax is split evenly with their employers.
If you're self-employed, though, you'll have to cover your entire Social Security tax bill yourself. And if you earn $147,000 or more, your Social Security tax burden will increase by $520.80 next year.
Whether you're collecting Social Security already, you expect to file shortly, or you're not planning to sign up for benefits for many years, it pays to stay informed about the program's changes. It's possible that one or more of these updates will impact you or someone you care about in the new year.