Payroll Taxes fund Social Security and all earners are subject to pay these taxes up till a specific limit. This limit could change from one year to another to showcase total wage growth. And next year, earners could expect to witness more of Social Security payroll taxes derived from their earnings.
How the Social Security payroll taxes actually work?
The present Social Security rate of tax equals 12.4 percent of your earning, up till the yearly cap. You pay 6.2 percent of that amount yourself if you are a salaried employee while your employer gives the remaining half. You pay the full 12.4 percent tax yourself if you are self-employed.
For the present year, $132,900 is the wage base meant for Social Security tasks. This implies earnings more than the threshold is not subject to a Social Security tax of 12.4 percent. However, the wage base will rise to $137,700 next year, which implies more no. of earners will be losing more money in 2020.
With all this said, workers who earn a minimum of $137,700 will have to pay a Social Security tax of $17,074.80. If you are salaried, you will be liable to pay $8,537.40 and if you are self-employed then you need to pay the complete $17,074.80.
Remember that this wage cap is applicable to just Social Security taxations. You need to pay medicare taxes across all your earnings.
Is it fair to have Social Security taxes?
Remember, Social Security offers max monthly benefits as well which seniors are permitted to collect. Though a person who earns $1mn will have to pay the same Social Security taxes on their income following year as someone who earns $137,00, these two will hold similar wage amounts in their benefits calculations for that year.
As such, the ultrarich won’t receive more during retirement from Social Security than the moderate-income earners. Thus, to make the ultrarich pay extra in the system is not the best or fair solution necessarily.