Exploring Social Security Tax Cap and Expansion Act
By Social Security is a vital part of retirement planning for millions of Americans, but how it is funded and how it affects your taxes can be a bit confusing.[0] Social Security is funded by a 6.2% payroll tax paid by both workers and employers, with earnings in 2023 capped at $160,200 that are subject to the tax. This means that someone who earns $83,333 a month ($1 million annually) finished paying into Social Security by the end of February.[1] By contrast, 94% of workers make less than $160,200 a year, and will pay the 6.2% Social Security payroll tax on all of their paychecks.
The Social Security Expansion Act was introduced last month by Senators Bernie Sanders and Elizabeth Warren to lift the Social Security tax cap and subject all income above $250,000 to the tax.[2] This would fund the program through 2096 and increase benefits by $2,400 a year, among other things.[3]
As the amount of individuals receiving benefits rises, while resources diminish, there is talk in Washington regarding altering Social Security eligibility or reducing benefits.[2] The 2022 Social Security Trustees report predicts that the funds for Social Security will be exhausted by the year 2034.[2]
In order to understand how much of your Social Security benefits you may be subject to in taxes, one must estimate their provisional income.[0] This is figured by taking your modified adjusted gross income and adding in 50% of your annual Social Security benefits.[4] If your Social Security income surpasses the individual threshold of $25,000 or the married threshold of $32,000, then you can anticipate that some of your Social Security income will be subject to taxation.[5]
Not all authorities and legislators concur that raising the Social Security payroll tax ceiling is the most ideal solution to the issue.[6] Other proposed solutions include: increasing the retirement age, raising the payroll tax rate, cutting benefits, and increasing taxes on other income sources.
It is important to pay attention to Social Security tax rules and regulations in order to ensure a secure future.[7] A financial advisor or accountant can help you plan for retirement, minimize taxes, and maximize Social Security benefits.[4]
0. “Social Security: This tax surprise could shake up your retirement” USA TODAY, 12 Mar. 2023, https://www.usatoday.com/story/money/2023/03/12/social-security-tax-surprise/69973330007/
1. “Why Millionaires Are Already Done Paying Social Security Taxes in 2023” AOL, 10 Mar. 2023, https://www.aol.com/why-millionaires-already-done-paying-125451912.html
2. “Report: Millionaires have stopped paying into Social Security for the year, others will keep paying” FOX 26 Houston, 10 Mar. 2023, https://www.fox26houston.com/news/millionaires-social-security-tax-cap
3. “Millionaires are done paying Social Security tax this year. Here's why” USA TODAY, 9 Mar. 2023, https://www.usatoday.com/story/money/personalfinance/2023/03/09/tax-on-social-security-disappears-for-millionaires/11421344002
4. “Don't Be Shocked: You Might Owe Taxes on These Forms of Retirement Income” The Motley Fool, 4 Mar. 2023, https://www.fool.com/retirement/2023/03/04/dont-be-shocked-you-might-owe-taxes-on-these-forms
5. “Benefits Planner | Income Taxes And Your Social Security Benefit” Office of the Inspector General, 15 Jun. 2020, https://www.ssa.gov/benefits/retirement/planner/taxes.html
6. “Experts Propose Tax Cap as Social Security Solution — Which Americans Would Be Most Affected?” Yahoo Life, 12 Mar. 2023, https://www.yahoo.com/lifestyle/experts-propose-tax-cap-social-144535645.html
7. “Some Seniors Pay Taxes On Social Security Benefits, But Here's How You Can Avoid Them” The Motley Fool, 8 Mar. 2023, https://www.fool.com/retirement/2023/03/08/some-seniors-pay-taxes-on-social-security-benefits
