The Income Subject ot Social Security Taxes Goes Up in 2012

In 2012, the amount of income subject to social security taxes (confiscation) is going up to $110,100 from $106,800 (the wage base for 2009 – 2011). This means the maximum social security tax will now be $6,826.20 ($13,652.40 when you include the employer’s portion). Take a look at these two graphs I put together to see just how quickly the maximum tax and the amount of income subject to the tax have increased since 1965. It’s not a pretty picture (and it’s only going to get worse).

All of this wouldn’t bother me so much if…

1. We didn’t have to pay income tax on the amount confiscated.


2. I could plan on getting our share back when we retire. It’s doubtful that’s going to happen. What is there will get taxed away because we have managed to save on our own.

NOTE: While researching this post, I tried to find a history of the maximum social security payment amounts but came up empty. Do any of you know where I can find this information?

35 thoughts on “The Income Subject ot Social Security Taxes Goes Up in 2012”

  1. There should be no cap. Why is it OK that the first $100k is subject to SS taxes, but not the next $unlimited? I prefer all income (from all sources) be taxed at a low flat rate, or completely abolishing the SS wealth transfer system altogether.

  2. BG ticks me off every time he talks about removing the cap.

    @Ben: 8.61% average annual growth in maximum social security contributions and 6.74% average annual growth in the income subject to taxes. The difference comes from the fact that the tax rate has increased over the years.

    @Bob: No, the numbers are not adjusted for inflation. I got them directly from the Wikipedia and the Social Security website and plugged them into Excel and performed the calculations. That said, we could adjust them if you would like. To get from $4,800 to $110,100 in 48 years, you’d need an inflation rate of 6.74%.

  3. Jack, along with my ideas on the tax side, you are right about the benefits side. The benefits should be means tested (ala welfare), or the benefits should be scrapped altogether with the tax. Basically I hate how the system is setup today.

  4. BG, they are means tested. Someone who pays in the maximum amount does not receive payments that reflect that. Not only that, if you make too much income, the government will tax what benefits you do receive. So, not only do you pay federal income tax on what is confiscated, you also must pay income taxes when you retire if you have managed to save too much. It’s a crock and I’m not sure how it’s even constitutional. Just .because it’s law does not mean it’s constitutional.

  5. RT wrote:

    “We do not pay income tax on the amount confiscated.”

    Uhhh…yes we do! Take a look at your check stub. You’ll see that the social security and medicare are NOT before tax.

  6. Also regarding the question of constitutionality….The Supreme Court ruled the Social Security Act as constitutional in 1936/37 in three cases. Helvering v. Davis, Carmichael v. Southern Coal & Coke Co. and Gulf States Paper, and Steward Machine Company v. US.

    The court mainly cited two principals in favor of the Social Security act….that being the commerce clause of the constitution, as well as the broad ability of the federal govt to tax granted in the constitution.

  7. I do payroll for our company as one of the many aspects of my job. If you are getting doubly taxed on your Social Security, you should talk to payroll or adjust your withholding. If you are in the 25% tax bracket, your federal tax witholdings should actually be somewhere around 21-22% of your gross.

  8. RT, the Helvering decision was a joke. First, the Court had to pass Stewart so that there was precedent. If a case relies on the “precedent” passed the same day, then the case cannot be supported by the Constitution.

    If you look further, what the Court did was say in Stewart that the attempt to curb the spread of unemployment between the States was a valid function of the federal government — taxing people and paying them unemployment benefits went to the general welfare of the States.

    Then, in Helvering, the Court admitted that the Social Security program did not have any affect on the general welfare of the States. The Court used Stewart as a precedent and said that if Congress could do a thing for a Constitutional reason, it could do that thing for ANY reason.

  9. RT) ugh — we all pay income taxes on the amount confiscated by social security. Where on the 1040 does it allow you to subtract payroll taxes from your income subject to income taxes?

    This is why HSA accounts are a great tax haven, because it lets you avoid both the SS taxes and income taxes. They are two separate and distinct tax systems, and taxes paid on one does not affect the other.

    JLP) SS benefits are _NOT_ means tested. A means-test as defined on the interwebs is: “an examination into the financial state of a person to determine eligibility for public assistance”

    If Bill Gates qualifies for SS benefits, then it is definitely not means tested.

  10. What you mean, BG, is that Social Security is not means-tested to your satisfaction. However, the fact is that the benefits are NOT in direct proportion to contributions — the more one puts in, the lower the returns. Also, we have a “progressive” (more like REpressive) tax system. With benefits taxed, those with more income get more of their Social Security benefits taken away.

    You will just not be happy until ALL of one’s benefits are taken away if he has had the brains to save for his own retirement.

  11. Jack, you are trying to analyze the thing like it is an investment. I see it as a complete loss of every dollar I put in. Sure, some people make out like bandits from SS…but every person who dies before 65 (or a few years after 65), lost 15+% of every dollar they earned over their entire life.

    It is time to either end SS, or transfer it to a welfare program where you wish you were rich enough to never ‘qualify’ for the benefits (much like food stamps).

  12. BG, not entirely true about dying before 65 and losing every dollar. The widows/widowers w/children will receive a monthly check, so not an entire bust.

  13. I love celebrating my personal Social Security Tax Freedom Day every year.

    And I hate Jan 1 for the same reason. Significant pay cut after the start of every year.

    This year there are three bi-weekly Friday paydays in December rather than the usual January. SCORE on the extra paycheck with no SS “contribution” flushed down the toilet.

    And yes – SS payouts are capped and severely tilted toward lifetime low income earners. People who pay the max every year get screwed more than anyone else, all things being equal.

  14. > Jack, you are trying to analyze the
    > thing like it is an investment.

    Only to the point of demonstrating that Social Security is means-tested. For you, it is just not means tested enough — it does not take away enough from those who take responsibility forr themselves.

  15. Jack) Along with the tax side changes, I would like to see the benefits truly means tested. I would not advocate a change on the benefits without a change on the tax side. Do you also do the same comparisons for the amount of taxes you pay that go towards food stamps?

  16. BG,

    I think it would be awesome to see some transparity in the tax code. When you write a check to pay your taxes, it would be nice to see a breakdown of where each of your tax dollars are going.

  17. > Do you also do the same comparisons for the
    > amount of taxes you pay that go towards food
    > stamps?

    Are the food stamp benefits in any way tied to how much a person has put into the program? I, for one, have never gotten a statement of expected benefits from the food stamp program.

  18. JP) You can see a break down by looking at the federal budget. If you include the SS tax confiscation (along with income taxes, medicare, etc taxes):

    24%: Defense
    23%: Healthcare (Medicare / Medicaid)
    20%: Pensions (Social Security)
    12%: Welfare (EIC, Foodstamps, unemployment)
    6%: Interest on debt
    3%: Education

    Pretty clear where all the money is wasted. (data from

    Jack) You are still hung up on this. IF (IF) the tax side were changed, THEN (THEN) the benefits should be means-tested. Either make the program similar to foodstamps (where everyone pays based on taxes out of every dollar, and you have to pass a means-test to get ANY benefits) — or scrap the program altogether.

  19. I am proposing that it should be taxed like medicare, with every dollar taxed, but at a much lower rate.

    Why is 12.4% of the first $110k, better than 6.2% on the first $220k? You seem to be in favor of 28.4% on the first $55k, or even 100% tax on the first $6,800. Your position makes no sense to me.

  20. If the taxes are tied to a particular benefit, then the taxes should be proportional to the benefits.

    > Why is 12.4% of the first $110k, better
    > than 6.2% on the first $220k?

    The first raise more revenue than the second. Do you think that everyone makes more than $220k?

  21. Exactly — SS tax scheme is nothing more than a revenue generator. And at the same-time creates the class-warfare mentality (by allowing repubs to claim that 50% pay no “income” taxes, even though those people are paying out the nose in “payroll” taxes). That is why I favor a flat tax for all (with no exemptions or deductions). We should not have separate income tax codes, payroll tax codes, AMT tax codes, etc — every dollar people obtain should be taxed exactly the same regardless of source of the dollar (earned or dividend or inherited, etc), and the first dollar should be taxed identically to the last dollar (same exact flat-tax rate) — with absolutely no deductions or exemptions for anyone (aside from franking credits to avoid double taxation).

    At the same time, we need to drastically scale back government spending: starting with Defense, Medicare/Medicaid, and Social Security — those three items are 2/3rds of the government spending budget.

    I don’t mind helping some poor widower with my tax dollars (you may not agree), but I’m sure we both agree that we should not be ‘helping’ a _rich_ widower. Just because someone is old, doesn’t mean that I should pay for their medical costs, etc. Let them burn through their own money first before qualifying for ‘government assistance’.

  22. I’ll go with just about everything except the inheritance tax. Under your scheme, that income has already been taxed.

    As for the spending side, Defense has gone from 50% of the budget in 1960 to less than 20% now. Social programs have gone from less than 20% in 1960 to over 50% now. I say we cut first that which has grown the most.

    I do not have a problem helping out some poor widower with my own money, but it would be immoral for me to take YOUR money to give him.

  23. Sounds like we agree: cutting off support to rich widowers should be the first step. And how to accomplish that: means testing Social Security benefits.

  24. was my comment held in moderator purgatory ? I included links that actually answered your questions : submitted at “December 2nd, 2011 at 4:17 pm”

  25. Jack) If SS is in fact ‘means-tested’ today, then you are correct that it is not nearly means-tested enough to my satisfaction.

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