Social Security Wage Base Increases for 2023
October 13, 2022
If you’ve been paying attention to the headlines today, you know that the Social Security Administration just announced an almost 9% cost-of-living increase in benefits, the largest increase since 1981. You may have already guessed that this also means in increase in the wage base that is subject to the Social Security tax.
FICA Cost-of-Living Adjustment
As announced by the Social Security Administration, the maximum amount of earnings subject to Social Security tax will increase to $160,200 in 2023 (up from $147,000 in 2022). The Social Security tax withholding rate will remain at 6.2%. With the new wage cap, the maximum withholding for Social Security will be $9,932.40. [Pretty sure, but it’s never a bad idea to check my math. My ability to do math, even with a calculator, is about the same as Justin Timberlake’s in this scene from Friends with Benefits.)
Medicare tax rates also remain the same and are not subject to a maximum (the threshold at which the additional Medicare tax applies is likewise unchanged—this threshold is not tied to inflation).
How Do This Year’s Adjustments Compare to Prior Years?
This year’s wage base is 8.98% higher than last year’s. That is a significant increase. Since 1998 (the earliest year for which Social Security wage base data is available in an easily downloadable format on Wikipedia), the average increase has been 3.48% and the median increase has been 3.5%. Thus, by either measure, this year’s increase is considerably higher than normal.
It's also considerably higher than last year’s increase (just 2.9%) and the highest increase since 1998. The second highest increase was in 2017 (7.3%).
Why Is the Wage Base Increase Different Than the Benefit Increase?
The increase in the Social Security wage base is a little higher (8.98%, as noted above) than the increase in benefits (8.7%). Why the difference?
Well, the two amounts are calculated differently. Social Security benefits are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The Social Security wage base is tied to the National Average Wage Index. In addition, the wage base calculation uses data from the prior year, not the current year. The 2023 wage base increase is tied to 2021 data on wages. The benefits calculation, however, compares the CPI-W for Q3 of the current year to Q3 of the prior year.
A Few of My Favorite Tax Resources
While we’re on the subject of taxes and heading into year-end tax reporting season, I’d like to mention a few of my favorite resources that are available for NASPP members.
Taxation in the Event of Death, Divorce, and Retirement—Videos Available
Death, divorce, and retirement are some of the trickiest tax withholding and reporting scenarios you can encounter for stock compensation. To help you understand the rules, I recorded three videos that cover the tax treatment of equity awards in these situations. Each video is only about ten minutes long and summarizes the company’s US tax reporting and withholding obligations.
- Tax Reporting for Options and Awards Transferred Pursuant to Divorce (9 minutes)
- Tax Reporting for Options and Awards Transferred Upon Death (10 minutes)
- Tax Reporting for RSUs that Provide for Accelerated or Continued Vesting Upon Retirement (11 minutes)
Tax Reporting Guide
Another one of my favorite resources is our handy Tax Reporting Guide for Stock Plan Transactions, which illustrates, in tabular format, how to report an extensive list of stock plan transactions on Form W-2. It provides an easy-to-use checklist to verify that you are reporting stock plan transactions correctly for federal tax purposes.
Form W-2 Reporting Checklist
Make sure you haven’t overlooked any reportable income with our Form W-2 Reporting Checklist. This list can be a helpful framework for your year-end kick-off meeting with payroll.
Tax Reporting FAQs
You’ve got questions on how to report stock plan transactions on Forms W-2, 1099-NEC, and 1099-MISC and we have answers. Check out the following FAQs: