2023 Social Security Tables Prompt a “Wow” Response.
In the past few days, I have been working with a client to develop an alimony proposal to settle the case. The payors of alimony inevitably ask the salient question: “So how much will I be left with if I pay -x- amount as alimony?” That requires a calculation of how much will be paid in taxes and that prompted a look at what will happen in 2023 to Social Security taxes.
In one sense, it’s easy. The employer and the employee each contribute 6.2% of income to the social security fund through withholding taxes. But there have always been maximum amounts. From 1937 to 1950 the maximum amount subject to tax was $3,000 or $186 a year. As recently as 2000 the maximum amount subject to social security tax was $76,200 or $4,724 a year. In 2014-2016 the maximum remained relatively static at $118,000 +/- a few bucks. The last time we wrote about this was 2017 when the bracket shot up from 118,000 to $127,000 at a time when inflation was about 1.8-2.5%.
Today’s numbers for 2023 were something of a shock. In 2019 the maximum stood at $132,900. In 2022 the social security maximum rose to 147,000. Ready…. it’s headed next year to $160,200. Talk about inflation (estimated at 8.6% in 2022). In 2019 your maximum contribution was $8,240. Next year the maximum will be $9,932—an increase of almost $1,700 in three years. And if you are self employed in that pay range you get to pay twice….almost $300 a month in contributions. At the risk of tedium since the year 2000 inflation has increased the Consumer Price Index by a factor of 1.71. But the social security maximums have increased by a factor of 2.1.
Clients tend to look at net pay for support as directly tied to net pay on their payroll advice. Realize that for many Americans net pay also removes contributions to things like health and life insurance or retirement contributions to a qualified plan. Those are not mandatory contributions although health insurance comes close to being one. But Uncle Sam’s dig into the wallet for your social security is big and growing fast if your income is gross is in the range of $11-13,000 a month. It isn’t just the gas station and grocery store vacuuming cash from your wallet. It could be that your payroll department is hitting you as well.
