2023 Social Security Tax and Benefits Update for High Earners
With inflation continuing to take a bite out of retirement benefits, the Social Security Administration has made some significant changes effective January 2023 to taxable wages and the maximum monthly benefit high earners can receive. Here is a summary of the updates.
Q: How Much Could My Wages Be Taxed to Help Fund Social Security?
A: For 2023, you will be taxed on the first $160,200 of earned income (up from $147,000 in 2022).1 These annual increases factor in a rise in the cost of living and rate of inflation. Note that if your earned income is $160,200 or greater in 2023, the maximum annual Social Security tax you’ll pay is $9,932.40.1
Q: If I Own My Business, How Much Can I Expect to Pay in Social Security Taxes?
A: As both employer and employee, business owners have the onus of paying taxes for both, so a 12.4% tax rate on your net earned income. That means a business owner could pay double the Social Security tax in 2023 compared to what employees pay.
Q: Should I Wait Until Age 70 to Receive Social Security?
A: If you wait until age 70, the monthly benefit amount a high earner can receive is capped at $4,555 for 2023.2 The government calculates your full retirement age benefit based on your lifetime earnings; it then adds to or subtracts from that amount based on the number of years before or after age 67 you start receiving the benefit. Once you reach age 70, the benefit will max out and it won’t make sense to delay further.
Q: What Is the Expected COLA Increase in Social Security Benefits for 2023?
A: For 2023, the COLA for Social Security is 8.7%, which is in effect as of January 2023.2
Q: How Much of My Social Security Benefits Could Be Taxed?
A: For high-net-worth individuals and families, up to 85% of your Social Security income could be taxed by the IRS. If desired, you can have federal taxes withheld from your payments. It’s important to note that some states also tax Social Security benefits.
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This material is intended for informational and educational purposes only. It should not be construed as advice related to your personal situation. Please contact your financial and tax professionals for more information specific to your situation. Information has been obtained from third-party sources deemed reliable, but we make no representation regarding the accuracy or completeness of the information.
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