As of 2021, the maximum earnings subject to social security taxes was $142,800. But the amount has been increased to $147,000 for 2022. The federal government changes this limit (aka taxable maximum) every year according to the average wage index.
The OASDI (Social Security’s Old-Age, Survivors, and Disability Insurance) tax rate for the wages paid in 2022 has been set by the social security authorities at 6.2% for both employers and employees. The tax rate for self-employment earnings is 12.4%.
This contribution and benefit base set by the government implies that an American worker who earns $ 147,000 or more needs to contribute $9,114 to the OASDI and the same amount would be contributed by their employer.
To address the rising prices in the US economy, the SSA has also increased COLA (Cost of Living Adjustment) by 5.9% for 2022. So, if a social security recipient collected $10,000 in 2021, their annual benefit will amount to $10,590 in 2022.
How it Works
The US’s social security system is primarily funded by the social security tax or the “old-age, survivors, and disability insurance (OASDI) tax.” The social security tax can be divided into the following parts:
Payroll Tax
Mandated by FICA (the Federal Insurance Contributions Act), its a percentage of an employee’s wage withheld by their employer to pay into the country’s social security system. This amount is paid on the employee’s behalf and is based on their salary, wage, and tips.
Self-Employment Tax
Mandated by the SECA (the Self-Employment Contributions Act), it’s a levy (15.3% inclusive of the 2.9% Medicare tax and 12.4% social security tax) required to be paid by self-employed American workers. They need to pay a tax equivalent to both the employee and employer’s portion of the FICA tax. Since the self-employed people work for themselves, they can withhold the employer portion of these taxes as a business expense. If a self-employed person doesn’t earn $400 or more, they don’t need to pay the SECA tax.
Experienced Social Security Lawyer in Little Rock
Lisa Douglas is a professional and highly experienced social security lawyer in Little Rock. If you want to avoid legal complications associated with social security taxes and other legal requirements regarding social security reach out to The Law Offices of Lisa Douglas today.
Disclaimer: This blog is only intended for educational purposes and shouldn’t be used as a substitute for legal advice.
