We have all dealt with a lot of changes in the last 18 months. In 2022, there will be further changes that will affect our financial lives. Read on for details.
Changes to social security
- With the biggest Cost-Of-Living-Adjustment (COLA) since 1982, Social Security recipients will receive a 5.9% increase in benefits. The 5.9 percent COLA will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2022. Increased payments to approximately 8 million SSI beneficiaries will begin on December 30, 2021.
- In 2021, employees were required to pay a 6.2% Social Security tax (with their employer matching that payment) on income of up to $142,800. Any earnings above that amount were not subject to the tax. In 2022, the tax rate remained the same at 6.2% (12.4% for the self-employed), but the income cap increased to $147,000.
- If you work while collecting Social Security benefits, then all or part of your benefits may be temporarily withheld, depending on how much you earn. In 2022, income limits will see a slight increase. Prior to reaching full retirement age, you will be able to earn up to $19,560 in 2022, a $600 increase compared to $18,960 in 2021. After that, $1 will be deducted from your payment for every $2 that exceeds the limit.
Read more about 2022 COLA adjustments here.
Not sure when you should start collecting Social Security? Start here.
Tax rates are changing
The Internal Revenue Service has announced tax inflation adjustments for 2022. These changes will be applied to your income when you file your taxes in 2023. The biggest standouts are adjustments to the standard deductions and marginal rates (tax brackets). Compared to 2021, the standard deductions are up $800 for married couples filing jointly, up $400 for married couples filing separately and single taxpayers, and up $600 for heads of household. The top tax rate remains at 37% for the highest earners (greater than $539,900 for single taxpayers and greater than $647,850 for married couples filing jointly). Upwards adjustments have been made in all other brackets. Click here for the full IRS press release and a listing of other changes in 2022.
Student loan payments resume
The moratorium that paused federal student loan payments, stopped collections on defaulted accounts, and set a 0% interest rate is set to expire on January 31, 2022. This means that borrowers can expect to receive their first bill in nearly two years in February 2022. Here’s how to prepare:
- Make sure your automatic payments will restart. If your payments were auto-drafted before the pandemic, it does not necessarily mean they will resume. You should check with your loan servicer before your first due date.
- Get in contact with the Department of Education if you can’t afford your payments. If you are unable to resume your regular payments, you have options. These include deferment, forbearance, and income-drive repayments plans. Be sure to do your research on which option will work best for you.
- Be prepared if you were already in default before the moratorium. If you’ve started a new job your wages cannot immediately be garnished, but the default can be reported to credit bureaus and efforts to collect the debt can resume quickly. Contact your loan servicer to go over your options to get out of default.
- Be on the lookout for a new loan servicer. Some companies have ended their contracts to service federal student loans. This means that millions of borrowers will have a new servicer. If this is the case for you, you should receive communication from your old servicer and the new one. It is recommended that you make a careful record of your loan details from the original servicer to compare what is reflected in the new servicer’s system.