10 Tips for Maximizing Your Financial Plan in 2023: Tip 5- Social Security Tax

For 2023, Matt Blocki advises being aware of Social Security tax and its impact on your cash flow. Specifically, he notes that out of the 7.65% payroll tax, 6.2% is allocated to Social Security tax. This Social Security tax has a maximum income cap, meaning that once you earn a certain amount, this tax no longer applies to the additional income.

For 2023, the income threshold at which Social Security tax stops applying is $160,200 per individual. If you earn more than this threshold, your paycheck will see a significant increase once you pass it. This cap is per individual, so if both spouses are working, they each have their own separate cap.

Understanding this Social Security wage base and its impact on your income can help you plan your budget and cash flow effectively throughout the year.

Video Transcript

Hello, Matt Blocki with EWA. Today we are talking through ten tips for 2023 and how to maximize your financial plan. Tip number five is just to be aware of this from a cash flow perspective. So, as an example, Social Security tax and flight taxes in general, which is 7.65% of your paycheck, it’s important to know that part of that 7.65, specifically 6.2% of that is your Social Security tax.

And this is actually capped. So if you’re an income earner making 100,000, that 6.2% is going to be evenly distributed out throughout the year. If you’re an income earner making 150,000, same thing, it’s going to be distributed out the year.

If you’re an income earner making 300,000 from a cash flow perspective, the first 160,200 that you earn, that 6.2% Social Security tax will apply. The rest of the money, the 139,800, will not have a Social Security tax on it.

So that’ll be a pretty significant increase in your paycheck once you reach that maximum. So for someone making 300, it’ll be almost halfway through the year, probably first or second paycheck in July that you’d start to see that increase.

But important to know from a budgetary and cash flow perspective that Social Security wage base has gone up, which means it will take you longer to reach that maximum or that 6.2% tax does apply until you’ve reached that 160,200, that is per individual, that’s not per household.

So if both spouses are working, that’s 160,200 per spouse, that that tax will apply.

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Playlist

10 Tips for Maximizing Your Financial Plan in 2023

10 Tips for Maximizing Your Financial Plan in 2023: Tip 1- 401ks and 403bs
10 Tips for Maximizing Your Financial Plan in 2023: Tip 2- Roth IRAs
10 Tips for Maximizing Your Financial Plan in 2023: Tip 4- Allowable Income for 401k and 403b
10 Tips for Maximizing Your Financial Plan in 2023: Tip 3- Traditional IRA Planning
10 Tips for Maximizing Your Financial Plan in 2023: Tip 6- HSA's
10 Tips for Maximizing Your Financial Plan in 2023: Tip 7- Tax Bracket Management
10 Tips for Maximizing Your Financial Plan in 2023: Tip 8- Estate Planning
10 Tips for Maximizing Your Financial Plan in 2023: Tip 9- 529 Plans
10 Tips for Maximizing Your Financial Plan in 2023: Tip 10-Standard Deduction

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