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The Earnings Subject to Social Security Tax is Going Up Again!
By JLP | October 17, 2008
The amount subject to Social Security Tax is going up again.
From a recent Social Security press release:
Some other changes that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $106,800 from $102,000. Of the estimated 164 million workers who will pay Social Security taxes in 2009, about 11 million will pay higher taxes as a result of the increase in the taxable maximum.
Wages increased 4.7% in 2007? That’s a surprise to me.
Math-wise, the increase means that the maximum paid into Social Security in 2009 will go up to $6,622 from $6,324 (or, $13,244 from $12,648 if you include the employer-paid portion).
Take heart if you’re one of the 11 million workers shouldering this increase: you’re priviledged!
Topics: Social Security, Taxes | 14 Comments »
October 17th, 2008 at 11:37 am
I saw elsewhere that social security payments, which are indexed to the cost of living, are going up by 5.8% next year. I think the real story is, wages rose less than inflation (4.7% vs 5.8%).
Take heart, JP, that there is an income ceiling at all on this tax – it is one of the few cases where American taxes are actually done right. Individual benefits are capped at a certain level, so taxes are capped accordingly. That way, people earning more than $106,800 don’t pay more into the system than they could ever hope to recoup.
Of course, the system at it currently stands is going broke due to demographics (a lot more older people, a lot fewer younger people, and longer lives for all), so this cap may end up being repealed one day. But for 2009 at least, this one makes sense.
October 17th, 2008 at 4:54 pm
People that pay ~$100k are still going to get less. In fact almost everyone will likely get less than they pay consider benefits will have to decrease in the future.
October 17th, 2008 at 10:30 pm
When Obama takes office, removing the cap is one of his ideas to get SS back on track. So after 2009 it might disappear.
October 17th, 2008 at 11:35 pm
Of course he will. It’s another way to “redistribute wealth.” Punish the strong…we’ll evolve into a race of numbskulls.
October 18th, 2008 at 9:32 pm
Um, Stacey, Social Security is redistributing wealth UPWARD right now.
So why are you okay with that but you’re objecting to redistribution in the other direction?
October 18th, 2008 at 11:19 pm
Because I’m tired of being taxed to death b/c of other people’s poor choices. That’s why!
October 19th, 2008 at 6:59 am
To poorboomer:
Actually, Social Security is doing the exact opposite, the wealth is redistributed downward.
From an article by Scott Burns on Social Security benefits dated Jan 16, 2008:
“When you study Social Security further you will learn that your benefits are not in direct proportion to your income. Instead, you are credited at three different rates. For 2008, for instance, workers are credited with 90 percent of earnings up to average monthly indexed earnings of $711. Earnings over $711 a month but less than $4,288 a month are credited at 32 percent. Earnings over $4,288 a month are credited at 15 percent. In effect, this works like a steep, hidden income tax, because income over $51,456 a year receives only one-sixth the future benefits as income under $8,400 a year.”
October 19th, 2008 at 2:45 pm
@ Poor Boomer. Another point I’d like to make in this (perceived?) rich vs poor class warfare: after a certain income level one is unable to benefit from many tax giveaways: child tax credit, the ability to deduct ALL itemized deductions, in some cases the loss of the personal exemption, the ability to take a deduction for college tuition (which was reinstated in the bailout bill), the imposition of AMT, the loss of being the recipient of “tax stimulus checks”, the inability to contribute to an IRA, etc. I’m sure there are more examples I’m missing. So my point is the “rich” are already getting it socked to them. If the social security cap is removed it will just be one more thing we have to take in the ….
I prefer to distribute wealth to the needy by supporting my church and other worthwhile charities and helping family members on a one-to-one basis. I don’t WANT the government to decide where our earned money gets redistributed. This country has to look deep within…start recognizing people have to take some personal responsibility for their actions/inactions: (not furthering their vocational training/obtaining a college education, having children they can’t properly raise/afford, generally living beyond one’s means, etc.) and stop relying on the taxpayers to foot the bill.
October 20th, 2008 at 4:26 pm
Thank you Stacey, I agree…
November 7th, 2008 at 3:13 pm
What an odd conversation. Social Security is social insurance that provides protection against socially recognized conditions such as poverty, disability, underemployment, etc. So if it didn’t “redistribute downward” then wouldn’t the purpose be defeated?? The wealthy SHOULDN’T be recouping as much as they’re paying in…the whole POINT is that they shouldn’t need social security at all.
November 7th, 2008 at 10:22 pm
Karen M, I couldn’t disagree more strongly with you.
Social Security (unlike welfare) is not “insurance against poverty.” It is a mandatory, government administered pension system. By contributing to it, you earn a pension further down the road.
Someone who has worked for General Motors for 25 years and then wins the lottery doesn’t lose his right to the pension he has rightfully earned just because he genuinely or purportedly doesn’t “need” it any more.
Social Security is no different. It was set up so that everybody who earns wages would have a pension. To try to repurpose it into a welfare system, and by so doing swindle some of its participants out of their pensions, would be a horrific crime against working Americans.
If anyone seriously attempts this, we at AAFR will do everything in our power to alert the electorate to what is going on, and to mobilize them against it.
February 13th, 2009 at 8:15 am
There are two major reasons for the cap. One is that those who contribute the most are not entitled to it being returned, and this point has been talked to death above. The second issue is one McCain spoke of, but not very well. The employer loses a lot of money if the cap is reversed. Say the employer themself makes a salary of 120K, and they have an employer who make 110K. With the cap, the employer save half the social security tax (employer contribution) on the 3200 paid on behalf of the employee, and all the social security tax on the 13200 for their own salary (employer plus personal contribution). The raising of the cap alone makes it very expensive for the employer to keep high price talent, and a removal of the cap could be devastating if you are paying your top talent significantly more.
I would suspect that those that object are those making less than the capped amount right now, and wondering why those people complain when they make so much more. In truth, most of those who complain would probably like to one day make that much. If an employer gains no financial incentive to increase wages (say a tax break on each employee over 107K) the number of jobs at or above this rate would go down.
February 27th, 2009 at 12:19 pm
Karen M, are you serious? You obviously are greatly mislead in so many ways. Your ideas of entitlement are groundbreaking in the field of ignorance. There is little doubt as to where you personally fall in the whole economic scheme of things.
September 6th, 2009 at 8:30 pm
What do you mean priviledged? People subject to the maximum social security tax are not priviledged, especially those that are small business owners, they work very hard 6 days and sometimes 7 days a week.