The income cap for Social Security taxes is called the "Social Security Wage Base", also known as the "Contribution and Benefit Base."
What Does It Mean?
The Social Security Wage Base is the maximum income subject to Social Security payroll taxes.
Wages and self-employment income earned above this cap are not subject to the 6.2% Social Security tax (12.4% for self-employed).
2024 Example:
The Social Security Wage Base for 2024 is $168,600.
If you earn $200,000, you only pay Social Security taxes on the first $168,600.
The 6.2% tax on $168,600 results in a maximum contribution of $10,453.20 from employees, with employers matching this amount.
Medicare taxes have no wage base limit, meaning the 1.45% Medicare tax (2.9% for self-employed) applies to all income, with an additional 0.9% Medicare surtax on earnings over $200,000 ($250,000 for married couples filing jointly).
Why Is This Important?
The cap limits how much high earners contribute to Social Security, leading to debates about fairness and system funding.
Proposals to raise or eliminate the cap aim to increase revenue for Social Security, potentially extending its solvency.
Potential Impact of Raising the Wage Base to $1 Million
Raising the Social Security Wage Base to $1 million could generate approximately $13.38 billion in additional revenue annually. This change would enhance the solvency of the Social Security program and provide a more equitable distribution of payroll taxes among high earners. It is estimated that this change could extend the solvency of the Social Security Trust Fund to approximately 2050.