Starting Jan. 1, 2023 the maximum earnings subject to the Social Security payroll tax will increase by nearly 9% to $160,200 - up from the $147,000 maximum for 2022, the Social Security Administration (SSA) announced Oct. 13. The SSA also posted a fact sheet summarizing the 2023 cost-of-living adjustments (COLAs).
The taxable wage cap is subject to an automatic adjustment each year based on increases in the national average wage index (not the inflation rate), calculated annually by the SSA. However, the wage increases this year outpaced previous years due, in part, to the surge in inflation. On Oct. 13, the IRS announced that through September the year over-year increase in the consumer price index was 8.2%, down from the 9.1% high notched for the annual period ending in June.
Growth in the Social Security wage cap from $128,400 in 2018 to $160,000 in 2023 represents nearly a 25% increase over the past five years.
The IRS also raised the top amounts of all seven federal income tax brackets for 2023, which could increase the paychecks of many employees by taxing more of their earnings at lower rates and influence employee decisions on paycheck withholding amounts.