Accounting summary with taxes withheld, social security wage base increase 2023
Accounting summary with taxes withheld, social security wage base increase 2023

2023 Social Security wage base for payroll taxes jumps to $160,200

President Roosevelt first introduced Social Security in 1935. The almost 90-year-old program has become a vital source of income for tens of millions of US households every month. The Social Security program is constantly evolving, and several key changes are coming in 2023. Significantly, the Social Security Administration (SSA) recently announced that, based on the Consumer Price Index (CPI) changes, the Social Security wage base is going up by $13,200 (8.7%) for 2023. This means that employers and employees will pay $818.40 more in Social Security during 2023 than they did in 2022.

Summary of changes coming in 2023

  • Social Security recipients will be receiving an 8.7% Cost of Living Adjustment (COLA)
  • Businesses and those working will be paying more into Social Security
  • The wage base for computing Social Security tax will increase to $160,200 (up from $147,000 for 2022; an increase of $13,200)
  • The maximum Social Security employer contribution will increase to $818.40

COLA increase will boost payments to Social Security recipients

The most publicized of the changes coming in 2023 is the cost-of-living adjustment (COLA). Every year, based on increases in the national average wage index, the Social Security Administration (SSA) calculates an automatic taxable wage cap adjustment to ensure that monthly Social Security payments keep up with inflation. In 2022, wage increases outpaced previous years, primarily due to the surge in inflation. As a result, Social Security recipients will receive an 8.7% COLA raise in 2023, the sharpest rise in nearly 40 years that will see the average monthly Social Security benefit increase from $1,681 to $1,827. 

Increased tax for high earners 

As a result of the wage base increase, high earners’ 2023 income will be subject to an extra $13,200 in Social Security taxes. Beginning in January next year, employees whose compensation exceeds the current 2022 taxable earnings cap ($147,000) will notice a decrease in net take-home pay due to the payroll tax adjustment.

Businesses must adjust systems and notify employees

Before the start of the new year, employers should:

  • Adjust their payroll systems to account for the higher taxable wage (if you have a cloud-based payroll system, this should happen automatically)
  • Notify affected employees that more of their pay will be subject to payroll withholding

What about self-employed individuals?

The 2023 self-employment tax is 12.4% Social Security tax on the first $160,200 of self-employment income, reaching a maximum tax of $19,864.80 (12.4% of $160,200). 

Have any questions about your 2023 payroll tax filing or payments?

At Financial Solution Advisors, our experienced team has been helping clients with payroll tax planning for over 40 years. We’ve also adopted cloud-based payroll technology to help to automate your payroll processes. Send us a message if you’re ready to hand off your payroll process and save your business time, hassle, and money.

Learn more about the social security wage base increase 2023: SSA 2023 Fact Sheet

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