Here is a roundup of the changes coming to Social Security and Medicare in 2022.
Checks are going up by 5.9%. The 2022 Cost-of-Living Adjustment (COLA), announced in October and taking effect this January, will be 5.9%. For those currently receiving Social Security, you should have already received a letter from them notifying you of your new benefit amount. If you missed it, you can get your information from your Social Security account. Payment dates will be the same, the second, third, or fourth Wednesday depending on the day of the month you were born. Everyone age 62 or older who has had their Primary Insurance Amount (PIA) officially calculated will get the COLA, whether or not benefits have started. The latest 5.9% COLA is the highest since 1982 and brings the 10-year average up to 2.11%, the 20-year average up to 2.27%. The OASDI Trustees continue to project a 2.4% inflation rate over their 75-year time horizon.
Indexing factors and bend points were also raised. Benefits for people under 62 keep pace with inflation via the rise in the indexing factors and bend points that will eventually determine your PIA when it is calculated the year you turn 62. The average wage index was up 2.83% in 2020, pretty much in line with its 20-year historical average of 2.92% (There’s a two-year lag: the 2020 index is used to figure 2022 PIAs for the 1960 cohort—that is, those turning 62 in 2022.) Based on average indexed monthly earnings (AIME) of $11,098 and the new bend points of $1,024 and $6,002, the PIA for a maximum earner born in 1960 will be $3,357, up from $3,262 for the 1959 cohort. This is the amount you’ll receive if you claim benefits at your full retirement age of 67, not counting COLAs or additional earnings between now and then.
The taxable wage base rises to $147,000. The maximum earnings on which Social Security taxes are assessed is going up to $147,000, from $142,800 in 2021. Based on the Social Security tax rate of 6.2%, maximum earners will pay $9,114 in Social Security taxes in 2022; self-employed clients will pay both the employee’s and employer’s tax of 12.4%, or $18,228. The Medicare tax of 1.45% (2.90% for self-employed) is assessed on all earnings.
Earnings test threshold increases to $19,560. Those who are under full retirement age who receive benefits and who work will have $1 in benefits withheld for every $2 they earn over the annual threshold of $19,560, up from $18,560 in 2021. In the year of application, the monthly earnings test will apply: if you earn less than the monthly amount ($1,630 in 2022) your benefit will not be withheld regardless of how much you earned prior to application. But if you continue to work after applying for benefits, that monthly threshold will be in effect for the remainder of the year. Those who turn FRA in 2022 will be under the FRA-year earnings test, which rises to $51,960 from $50,520: $1 in benefits will be withheld for every $3 earned over this higher threshold.
Window closing for restricted application. As those individuals grandfathered for restricted application approach age 70, there is less time to take advantage of spousal benefits. But the window has not slammed shut yet. Anyone born in 1953 and turning 69 in 2022 can grab a few months of spousal benefits as long as:
- they have not previously filed for their own benefit, and
- their spouse has filed.
Next year we will stop talking about this, but as long as there are still a few people who can do it, the message is worth spreading.
Old-Age, Survivors and Disability Insurance Program (OASDI) Trust Fund begins drawdown. It’s too soon to report on 2021 financials, but a quick look at the third quarter shows that the trust fund took in $255 billion and paid out $285 billion, for a net $30 billion decline in trust fund assets. The “Social Security 2100: A Sacred Trust” bill is still alive; the House subcommittee on Ways and Means held a hearing on December 7 to reinforce its urgency. If it comes up for a vote in the House in the spring, it would probably pass but may have a tougher time in the Senate. For more on this pending legislation see the provisions of the bill and the impact on the trust fund.
Medicare premiums going up by 14.5%. The Medicare Part B premium will be $170.10 in 2022, up from $148.50. The new Medicare Income-Related Monthly Adjustment Amount (IRMAA) range from $68 to $408.20 for Part B (up from $59.40 to $356.40) and from $12.40 to $77.90 for Part D (up from $12.30 to $77.10). The income thresholds, which are now adjusted for inflation, will be going up too: If MAGI is over $91,000 for individuals (up from $88,000) or $182,000 for married couples (up from $176,000), Part B and Part D premiums will be subject to the income-related monthly adjustment amount. The Part B deductible will be $233, up from $203. Please don’t forget that if you are retiring or have another life-changing event that will cause your income in 2022 to be lower than the 2020 income shown on the tax return used for reference, you can appeal the IRMAA. This could save you thousands of dollars in Medicare premiums.
Health Savings Account (HSA) contribution limit rises slightly. The 2022 HSA contribution limit rises to $3,650 from $3,600 (self), and $7,300 from $7200 (family). The catchup contribution for employees 55 or older stays at $1,000. The minimum deductible for the high-deductible health plans that go with HSAs is unchanged at $1,400 (self) or $2,800 (family). The out-of-pocket maximum for these HDHPs rises a bit, to $7,050 from $7,000 (self) and $14,100 from $14,000 (family). Remember, if you’re enrolled in any part of Medicare you may not contribute to an HSA. However, if both spouses participate in an HSA/HDHP and one spouse is not enrolled in Medicare, that spouse can make the full family contribution (but not the catchup contribution for the spouse on Medicare). A bill has been introduced in Congress, H.R. 5563, to allow Medicare-eligible individuals who are age 65 or older to contribute to health savings accounts if their entitlement to Medicare benefits is limited to hospital insurance benefits under Medicare Part A. S. 380 introduced in the Senate would do that and more.
