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Social Security Wage Cap and Benefit Amounts Increase for 2023, Social Security Fact Sheet: 2023 Social Security Changes
For 2023, the Social Security wage cap will be $160,200, and social security and Supplemental Security Income (SSI) benefits will increase by 8.7 percent. These changes reflect cost-of-living adjustments to account for inflation.
Wage Cap for Social Security Tax
The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:
- a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
- a 1.45 percent Medicare tax, also known as hospital insurance (HI).
For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:
- a 12.4 percent OASDI tax; and
- a 2.9 percent Medicare tax.
OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.
For 2023, the wage base is $160,200. Thus, OASDI tax applies only to the taxpayer’s first $160,200 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $160,200.
There is no wage cap for Medicare tax.
Maximum Social Security Tax for 2023
For workers who earn $160,200 or more in 2023:
- an employee will pay a total of $9,932.40 in social security tax ($160,200 x 6.2 percent);
- the employer will pay the same amount; and
- a self-employed worker will pay a total of $19,864.80 in social security tax ($160,200 x 12.4 percent).
Additional Medicare Tax
Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:
- $250,000 for married taxpayers who file a joint return;
- $125,000 for married taxpayers who file separate returns; and
- $200,000 for other taxpayers.
The annual wage cap does not affect the Additional Medicare tax.
Benefit Increase for 2023
A cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2023 by 8.7 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.
2023 Inflation Adjustments for Pension Plans, Retirement Accounts Released, Notice 2022-55; IR-2022-188
The 2023 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2022 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.
The 2023 cost-of-living adjustments (COLAs) were released for:
- pension plan dollar limitations, and
- other retirement-related provisions.
Highlights of Changes for 2023
The contribution limit has increased from $20,500 to $22,500 for employees who take part in:
- most 457 plans, and
- the federal government’s Thrift Savings Plan
- The annual limit on contributions to an IRA increased from $6,000 to $6,500.
The catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
The income ranges increased for determining eligibility to make deductible contributions to:
- ROTH IRAs, and
- to claim the Saver’s Credit.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or their spouse takes part in a retirement plan at work. The phase out depends on the taxpayer’s filing status and income.
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $73,000 to $83,000, up from between $68,000 and $78,000.
- For joint filers, when the spouse making the contribution takes part in a workplace retirement plan, the phase-out range is $116,000 to $136,000, up from between $109,000 and $129,000.
- For an IRA contributor, who is not covered by a workplace retirement plan but their spouse is, the phase out is between $218,000 and $228,000, up from between $204,000 and $214,000.
- For a married individual covered by a workplace plan filing a separate return, the phase-out range remains between $0 and $10,000.
The phase-out ranges for Roth IRA contributions are:
- $138,000 and $153,000, for singles and heads of household,
- $218,000 and $228,000, for joint filers, and
- $0 to $10,000 for married separate filers.
The income limit for the Saver’ Credit is:
- $73,000 for joint filers,
- $54,750 for heads of household, and
- $36,500 for singles and married separate filers.
Lastly, the amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500, up from $14,000.
2023 Inflation-Adjusted Tax Tables, Standard Deduction, AMT and Other Amounts Released, IR-2022-182; Rev. Proc. 2022-38
The IRS has released the annual inflation adjustments for 2023 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.
2023 Income Tax Brackets
For 2023, the highest income tax bracket of 37 percent applies when taxable income hits:
- $693,750 for married individuals filing jointly and surviving spouses,
- $578,125 for single individuals,
- $578,100 for heads of households,
- $346,875 for married individuals filing separately, and
- $14,450 for estates and trusts.
2023 Standard Deduction
The standard deduction for 2023 is:
- $27,700 for married individuals filing jointly and surviving spouses,
- $20,800 for heads of households, and
- $13,850 for single individuals and married individuals filing separately.
The standard deduction for a dependent is limited to the greater of:
- $1,250 or
- the sum of $400, plus the dependent’s earned income.
Individuals who are blind or at least 65 years old get an additional standard deduction of:
- $1,500 for married taxpayers and surviving spouses,or
- $1,850 for other taxpayers.
Alternative Minimum Tax (AMT) Exemption for 2023
The AMT exemption for 2023 is:
- $126,500 for married individuals filing jointly and surviving spouses,
- $81,300 for single individuals and heads of households,
- $63,250 for married individuals filing separately, and
- $28,400 for estates and trusts.
The exemption amounts phase out in 2023 when AMT exceeds:
- $1,156,300 for married individuals filing jointly and surviving spouses,
- $578,150 for single individuals, heads of households, and married individuals filing separately, and
- $94,600 for estates and trusts.
Expensing Code Sec. 179 Property in 2023
For tax years beginning in 2023, taxpayers can expense up to $1,160,000 in Code Sec. 179 property. However, this dollar limit is reduced when the cost of Code Sec. 179 property placed in service during the year exceeds $2,890,000.
Estate and Gift Tax Adjustments for 2023
The following inflation adjustments apply to federal estate and gift taxes in 2023:
- the gift tax exclusion is $17,000 per donee, or $175,000 for gifts to spouses who are not U.S. citizens;
- the federal estate tax exclusion is $12,920,000; and
- the maximum reduction for real property under the special valuation method is $1,310,000.
2023 Inflation Adjustments for Other Tax Items
The maximum foreign earned income exclusion amount in 2023 is $120,000. The IRS also provided inflation-adjusted amounts for the:
- adoption credit,
- earned income credit,
- excludable interest on U.S. savings bonds used for education, various penalties, and
- many other provisions.
Effective Date of 2023 Adjustments
These inflation adjustments generally apply to tax years beginning in 2023, so they affect most returns that will be filed in 2024. However, some specified figures apply to transactions or events in calendar year 2023.