A cellular billboard with a picture of Jeff Bezos requires increased taxes on the ultrawealthy, in Washington, Could 17, 2021.
Drew Angerer | Getty Photographs
In 2026, earnings up to $184,500 are topic to Social Security payroll taxes.
As of Monday, people with $1 million in annual wage and wage earnings have stopped paying into this system for this calendar yr, based on the Center for Economic and Policy Research.
Wealthier people cease paying into this system even sooner. Billionaire tech magnate Elon Musk might have paid all of his Social Safety taxes for the yr on New 12 months’s Day, relying on how his earnings is taxed, labor economist Teresa Ghilarducci has estimated.
How the Social Safety payroll tax works
Collectively, Social Safety and Medicare payroll taxes are referred to as FICA, named for the Federal Insurance coverage Contributions Act.
Staff and employers every pay 6.2% of wages towards Social Safety via payroll taxes. In addition they every contribute 1.45% for Medicare — and in contrast to Social Safety, Medicare taxes apply to all earnings with no earnings cap. There’s additionally a 0.9% Medicare surcharge for top earners.
Self-employed employees are topic to the complete 12.4% fee for Social Safety and a couple of.9% for Medicare, though they will additionally declare an above-the-line deduction of half of their FICA taxes.
Amid requires increased taxes on the wealthy and a looming Social Safety funding shortfall, some advocates and lawmakers are pushing to lift the payroll tax cap so that prime earners pay extra into this system.
Sooner or later, Social Safety might not be capable of pay advantages as supposed, mentioned Hayley Brown, a labor and incapacity researcher on the Middle for Financial and Coverage Analysis, a left-leaning suppose tank.
“In the meantime, we now have people who find themselves able to paying into the system all year long who cease earlier than three months of the yr have passed by,” Brown mentioned.
Extra of employees’ earnings exceed the payroll tax cap
The Social Safety Administration at the moment faces looming depletion dates for the belief funds it makes use of to assist make month-to-month funds to tens of millions of beneficiaries.
But as a result of cash continues to come back into this system via payroll taxes, advantages is not going to run out fully. As an alternative, the newest projections from the Social Safety Administration’s actuaries discover that the belief fund this system depends on to pay retirement advantages might run out in 2032, when month-to-month funds could be lowered by 24% except Congress takes motion to deal with the shortfall.
Elevating the Social Safety payroll tax cap is among the many choices lawmakers might take into account.
Analysis reveals that selection is widespread amongst customers. Elevating the payroll tax cap to include earnings over $400,000, whereas not rising advantages for these additional contributions, was the most popular of all of the coverage choices, based on a 2025 survey from the Nationwide Academy of Social Insurance coverage, AARP, Nationwide Institute on Retirement Safety and U.S. Chamber of Commerce. The group of retirement coverage and enterprise organizations polled 2,243 People.
Different widespread decisions recognized via that analysis had been steadily elevating the payroll tax fee from 6.2% to 7.2% and maintaining age 67 as the complete retirement age.
Earnings inequality has contributed to Social Safety’s present belief fund shortfall, based on recent research from the Roosevelt Institute, a liberal suppose tank, pupil community and nonprofit associate to the Franklin D. Roosevelt Presidential Library and Museum.
The share of earnings topic to Social Safety payroll taxes was 90% in 1983. But the payroll tax didn’t rise quick sufficient to take care of that 90% protection, based on the Roosevelt Institute. In 2000, it was roughly 82.5% and has since stayed at about that degree, with some fluctuations, Roosevelt Institute analysis discovered.
About 6% of employees have earnings above the cap, a share that has held regular. However these employees’ actual earnings grew by an “unexpectedly giant” common of 62% from 1983 via 2000, based on the Roosevelt Institute. In the meantime, the remaining 94% of employees with earnings under the cap noticed their common actual earnings go up simply 17% throughout these years.
How elevating the tax cap impacts Social Safety solvency
Elevating the payroll tax cap wouldn’t be a cure-all for Social Safety’s funding woes.
Eliminating the taxable most beginning this yr and never offering a profit credit score for tax contributions above the earnings threshold would repair 67% of the long-range actuarial stability, based on the Social Security Administration. Different variations of that change might not go as far, relying on elements together with earnings thresholds which might be taxed, reminiscent of $250,000 or $400,000 and above, and whether or not these contributions would end in increased profit funds.
Had the payroll tax cap been eradicated years in the past, the outcomes would have gone additional towards shoring up this system, Jason Fichtner, former deputy commissioner on the Social Safety Administration and present govt director of the LIMRA Alliance for Lifetime Revenue, mentioned throughout a March 3 panel dialogue on the Nationwide Institute on Retirement Safety annual retirement coverage convention in Washington.
“If we had simply raised the taxable most, removed the cap, simply that one coverage … that might have put us on 75-year solvency 15 years in the past,” Fichtner mentioned. “We have misplaced that one main choice.”
Not everybody agrees with eliminating the Social Safety payroll tax cap. The rise would impression upper-middle-class people and households, not simply the wealthy, based on the Manhattan Institute, a conservative suppose tank. It could additionally restrict the flexibility to lift taxes to pay for different initiatives, reminiscent of Medicare, which likewise faces a funding shortfall, it discovered.
But different consultants and voters say the change is on the prime of their want lists for Social Safety reform.
“It looks as if the fairest and most simple method to shore up Social Safety’s funds, and it additionally speaks to Social Safety’s standing as a social insurance coverage program,” Brown mentioned.
CEPR’s web site features a calculator to find out when people cease paying into this system this yr primarily based on their earnings.
“I hope that individuals use the instrument not simply to see once they cease paying in, however to attempt to experiment and see what it might be like for any individual making $200,000, $300,000 … after which attempt to reconcile that with their thought of what they suppose a good system would appear to be,” Brown mentioned.
