Social Security has been around for decades. And yet the program still undergoes its share of changes. Here are some big ones that workers and seniors alike can expect this year.
1. A giant raise for (some) beneficiaries
As of the end of 2021, the average monthly Social Security benefit sat at $1,565. In 2022, it will rise to $1,657. We can thank the largest cost-of-living adjustment (COLA) in decades for that.
You may have noticed that inflation was rampant during the second part of 2021. The rising cost of consumer goods might have hit a lot of people hard, but it also made it so that Social Security recipients are getting an impressive 5.9% raise in 2022. As a result, the average monthly benefit will increase by $92.
But not so fast. While the average benefit is rising (a lot), Medicare Part B premiums are following suit. As a refresher, Medicare Part A, which covers hospital care, is free for most enrollees. But Part B, which covers outpatient care, comes at a cost.
Seniors who are enrolled in Medicare and Social Security pay their Part B premiums out of their benefits. Because Part B is increasing by $21.60 a month in 2022, seniors on Medicare won't see the full impact of this year's COLA.
2. A higher earnings-test limit
Seniors on Social Security are allowed to work while collecting benefits. Those who do so at or beyond full retirement age (FRA) don't have to concern themselves with how much they're earning. But those who work and claim benefits before FRA are subject to an annual earnings-test limit.
In 2021, seniors could earn up to $18,960 a year without having their Social Security benefits impacted. In 2022, that threshold has increased to $19,560. Earnings beyond that point could result in some Social Security income being withheld.
The earnings-test limits look different for those reaching FRA in 2022. Last year, seniors in that boat could earn up to $50,520 without impacting their benefits. This year, that threshold is up to $51,960.
3. Higher payroll taxes
Social Security gets the bulk of its revenue from payroll taxes. Higher earners don't necessarily pay those taxes on all of their earnings since there's a wage cap that comes into play every year.
In 2021, earnings above $142,800 weren't taxed for Social Security purposes. This year, the wage cap has gone up to $147,000, leaving workers earning that much money, or more, liable for taxes on an additional $4,200 in income.
To be clear, this change won't impact the average U.S. worker. But those earning higher salaries are apt to be unhappy about forking over more in payroll tax. This especially applies to the self-employed, since they don't get to split their Social Security tax burden with their employers.
These are just some of the changes Social Security will undergo this year. Whether you're still working or are preparing to sign up for benefits soon, it pays to keep reading up on the program so you know what to expect.