Social Security tax heavier for lower wage earners

Apr 21st, 2022 | By | Category: Personal Finance/Consumers

The Social Security Administration announced in January that the wage base for computing Social Security tax has increased to $147,000 for 2022 (up from $142,800 for 2021). Wages and self-employment income above this threshold aren’t subject to Social Security tax. That means that for wage earners making over $1 million this year, the payroll tax on their earnings became zero on Feb. 24, the date they reached the taxable income limit for 2022. It’s an example of how supporting Social Security is a heavier burden for workers who make much less than $147,000, according to Center for Economic and Policy Research, a Washington, D.C.-based, non-profit organization that researches economic and social issues.

“The current payroll tax is not even 1 percent of a millionaire’s wage income,” said Sarah Rawlins, a program associated for CEPR.

The limit, which the Social Security Administration calls the contribution and benefit base, generally increases a few hundred or a few thousand dollars each year. This year’s base is $4,200 higher than 2021’s.

Compare a millionaire’s effective tax rate of less than 1 percent “to the 6.2 percent that any worker making less than $147,000 pays, and it’s clear that paying for Social Security rests on those who make the least,” Rawlins said.

The Social Security Trust fund is projected to have a shortfall in the future, partly because of rising income equality, she said. In 1989, only 10 percent of wage income was over the tax cap. The number is expected to be 18 percent in the next 10 years.

“Scrapping the payroll tax cap to make every earner pay the same tax rate, along with modest changes to the program, could eliminate the shortfall and allow for crucial expansions to benefits,” Rawlins said.