Social Security: Millionaires Set To Hit Their Payroll Tax Limit in March 2024
The Social Security program is financed through a dedicated payroll tax. Most Americans never hit the taxable maximum, but top earners with a gross annual wage income of $1 million have already reached the limit in March 2024, CNBC reported.
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According to the Social Security Administration (SSA), employers and employees each pay 6.2% of wages up to the taxable maximum of $168,600 in 2024, while self-employed workers pay 12.4%. Once workers hit that limit, they stop paying into the program. Those who are taxed to the full threshold will pay $10,453.20 to the program in 2024 (or $20,906.40 for the self-employed), and their employer will pay the same amount.
The taxable maximum is adjusted each year based on changes to the national average wage index, CNBC reported. The share of workers earning more than the taxable maximum has been around 6% since the 1980s, according to the Bipartisan Policy Center. However, income for those at the top of the earnings distribution has grown faster than average wages, increasing the percentage of total national earnings above the taxable maximum.
The Bipartisan Policy Center found that in 2022, only 82% of total payroll was subject to Social Security taxes. In 1977, the taxable maximum covered 90% of total national earnings.
Social Security also faces a funding shortfall. If Congress doesn’t raise taxes, cut benefits or implement a combination of both, there will be a benefit reduction of at least 20% by 2034, according to the program’s trustees.
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Majority of Voters Would Prefer To Raise Taxes on Wealthy Americans
A Data for Progress poll found that 71% of all voters would prefer Congress to address the shortfall by raising taxes on wealthy Americans, CNBC reported. Politicians and advocacy groups have also proposed requiring the wealthy to pay more into the program by reapplying the taxable maximum to those earning $400,000 per year — or even income over $250,000 — and applying the tax to business and investment income.
The Congressional Budget Office estimated that subjecting earnings above $250,000 to the payroll tax, as well as those below the current taxable maximum, would raise more than $1 trillion in revenues over 10 years.
The Bipartisan Policy Center also proposed increasing the taxable maximum in 2020. If the maximum was raised to $195,000, the group said, it would cover approximately 86% of total national earnings. A more aggressive approach would be to increase the maximum to cover 90% of total national earnings. Citing modeling data from the Urban Institute, the Bipartisan Policy Center said this would be phased in over 10 years and would close 20% of the shortfall.
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This article originally appeared on GOBankingRates.com: Social Security: Millionaires Set To Hit Their Payroll Tax Limit in March 2024
