Social Security has been around for decades, but the program still undergoes its share of changes from year to year. Here are a few changes that could impact your finances in 2022.
1. A generous cost-of-living adjustment
In recent years, Social Security's annual cost-of-living adjustments (COLAs) have been pretty stingy. That's because they're tied directly to inflation data, and prior to 2021, the rate of inflation held pretty steady.
This year, however, inflation has been rampant, and so benefits are getting a sizable boost in light of that. Going into 2022, Social Security recipients can expect to see their benefits rise 5.9%. That will take the average monthly benefit of $1,565 up to $1,657.
That said, the cost of Medicare Part B is also rising a lot, and so seniors on Social Security won't get to enjoy that raise in full. The standard monthly Part B premium will cost $29.60 more in 2022 compared to 2021, which will eat up roughly one-third of the typical beneficiary's COLA.
2. A higher wage cap for Social Security tax purposes
Workers don't pay Social Security taxes on all of their earnings. Each year, there's a wage cap put into place that determines how much income gets taxed.
In 2021, earnings of up to $142,800 are subject to Social Security taxes. Come next year, that wage cap will increase to $147,000. Lower earners won't be impacted by this change, but higher earners could lose more of their income to Social Security.
3. A higher earnings test limit
It's possible to collect Social Security while also holding down a job. If you do so before reaching full retirement age (FRA), you'll need to adhere to the earnings test limit if you want to avoid having some of your benefits withheld.
That limit changes every year. In 2021, you can earn up to $18,960 without impacting your benefits. From there, you'll have $1 in Social Security withheld for every $2 you earn above that cap. In 2022, that limit is increasing to $19,560, so you'll be able to earn a bit more without having benefits withheld.
The earnings test limit is also different for those reaching FRA. If you're reaching FRA in 2021, you can earn up to $50,520 without impacting your benefits. From there, you'll have $1 in Social Security withheld for every $3 you earn above that threshold. In 2022, that limit will rise to $51,960.
4. A higher earnings threshold to score work credits
To qualify for Social Security benefits, you'll need to accumulate 40 work credits in your lifetime, at a maximum of four credits per year. The value of a work credit can change from one year to the next. Right now, a work credit is worth $1,470 of income. In 2022, you'll need to earn $1,510 to snag a work credit.
If you work full-time, this change shouldn't matter to you at all. Even those making the federal minimum wage can easily earn the maximum four work credits per year if they have a 40-hour-a-week schedule. But if you work part-time, you may need to adjust your hours to ensure that you're able to earn the work credits you want.
Social Security can evolve substantially from one year to the next. Keep these changes in mind so you know what to expect once 2022 arrives.