Up and Coming 2023 Payroll Changes for Social Security and 401k Contributions
By Jill Robertson
Beginning in January 2023, the Social Security Administration will raise the maximum earnings subject to Social Security payroll tax to $160,200. This increase is up from the $147,000 maximum in 2022. The taxable wage cap is calculated annually based on the national average wage index. The increase for this year has outpaced prior years, in part, due to inflation. Social Security wage cap growth from 2018 to 2023 was nearly up to 25%.
|Payroll Taxes: Cap on Maximum Earnings|
|Type of Payroll Tax||2023 Maximum Earnings||2022 Maximum Earnings|
|Medicare||No limit||No limit|
|Source: Social Security Administration.|
As of the start of 2023, employers should:
- Update their payroll systems to reflect the higher taxable wage base for Social Security tax.
- Notify the affected employees that more of their earnings will be subject to payroll withholding.
While the cap on maximum earnings is increasing, there is some good news on the horizon in 2023 for those individuals who participate in 401(k), 403(b), and most 457 plans.
For 401(k), 403(b), and most 457 plans, the annual contribution limit will increase from $20,500 to $22,500 in 2023.
The 2023 contribution limit for IRA participants will increase from $6,000 to $6,500.00.
Catch up contributions for employees over 50 who participate in 401(k), 403(b), and most 457 plans increased from $6,500 to $7,500.00. For those employees 50 and over in SIMPLE plans, the contribution for 2023 will increase from $3,000 to $3,500.
For those individuals that contribute to SIMPLE retirement accounts, the contribution limits will increase from $14,000 to $15,500.
Be on the lookout for other adjustments coming soon from the IRS.
The information contained in this article is for informative purposes only and should not be relied on when making any business, legal, or other decisions. This information may be updated without notice and/or may not contain the most current information that is available related to this topic. Please consult with your advisor to determine how this information applies to your specific facts and circumstances.