It's hard to believe that we're a solid month into 2022. But alas, we're deep in the throes of a new year, and that means Social Security has already undergone some key changes.
Some of those changes may be obvious. If you're collecting benefits already, you may have noticed that your January payday was a lot higher than the benefit you received in December. That's because Social Security got a 5.9% cost-of-living adjustment in 2022, leaving seniors with higher benefits to enjoy.
But while it's hard to overlook a notably higher benefit, there are some Social Security changes that took effect this year that you may not have noticed. Here are some it pays to be aware of.
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1. The wage cap rose
Social Security gets most of its revenue from payroll taxes. But you may not pay taxes on all of your income.
Each year, Social Security sets a wage cap that dictates how much income is taxable to fund it. In 2021, that cap was set at $142,800, which means earnings above that point didn't get taxed for Social Security purposes.
This year, however, the wage cap increased to $147,000. If you're not someone who earns a six-figure salary, then a higher wage cap is something you may not know about and not even care about. But if your earnings are high enough to be impacted by the new wage cap, go ahead and take a look at your most recent paycheck. If your take-home pay is less than you expected, it may be due to higher Social Security taxes.
2. The earnings-test limit increased
Seniors on Social Security are allowed to earn money from a job. But if you work and collect benefits before reaching full retirement age, you'll risk having some Social Security income withheld if your earnings exceed a certain threshold.
In 2021, the earnings-test limit for Social Security was $18,960 for those who didn't reach full retirement age at some point in the year. This year, that limit is $19,560.
To be clear, a higher earnings-test limit is a good thing. It gives seniors the flexibility to earn more money from a job without having Social Security income withheld.
Meanwhile, the earnings-test limit for those reaching full retirement age this year is $51,960. That's an increase from last year's $50,520.
3. The value of work credits increased
It's not the case that every senior is entitled to Social Security. To qualify for benefits in retirement, you'll need to have earned 40 work credits in your lifetime.
The value of a work credit can change over time. Last year, one credit equaled $1,470 of earnings. This year, workers need to earn $1,510 to snag a credit.
If you work full-time, this minor change won't matter to you at all -- even if you only earn the minimum wage. That's because you can only accrue four work credits per year. Part-time workers, however, should note this change and potentially seek to ramp up their hours if they're concerned about not having enough work credits to be eligible for Social Security down the line.
Stay aware
Social Security is constantly changing, and some of those changes may sneakier than others. If all of these changes are coming as news to you, it means you may want to spend a little more time reading up on Social Security. Even if retirement is still many years off, it wouldn't hurt to stay informed about how the program works. And you should definitely keep tabs on changes like a higher wage cap that might impact you immediately.
