[Forbes] Most likely you will pay your Social Security taxes all year round. But some high earners will stop paying a few hours after we ring in the New Year, many before we return to work in the new year.
Social Security benefits are paid by the FICA tax, which is 12.4% of pay (split evenly between the employer and the employee). But earnings are taxed only up to a cap. In 2019, the cap was $132,900, a threshold that rises to $137,700 in 2020. Ninety-five percent of American workers pay FICA tax all year long because our annual earnings fall below the cap, while 5% stop paying sometime during the year when their earnings reach $137,700.
Who are these people who don’t pay Social Security taxes all year?
People don’t post their salaries, so we don’t know who is the highest salaried person in America. We know the richest man in the world is Jeff Bezos, but the system doesn’t tax wealth, it taxes wages and salaries (Social Security could tax wealth, but it never has). Public companies post the salaries and bonuses of their executives and these filings show that the highest-paid executives in 2019 were Safra Catz and the late Mark Hurd, the co-CEOs of tech giant Oracle, who each earned $108 million. At that pay level, executives effectively finish paying their Social Security taxes before noon on New Year’s Day.
In 2018, 168 million workers paid a total of $874 billion into the Social Security system. I don’t know the names of all the 1,174 people in 2018 who earned over $20 million or the 211 employees who earned over $50 million each (with an average salary of $95 million). But these extremely wealthy people paid Social Security taxes only on the first $128,400 they earned in 2018. On average, those 211 people at the top will stop paying Social Security taxes about 12 working hours into 2019.
Social Security Is Short of Funds Because of Income Inequality, Not Longevity Increases
Social Security is in good shape, but the program will have enough money to pay only 80% of benefits in 2034 unless the system obtains the equivalent of about one trillion dollars. That is unfortunate, because the Social Security system as it stands plays a crucial role in narrowing retirement wealth inequality between the rich and the poor.
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