Today is “scrap the cap” day for Social Security contributions. The goal is for all Americans to contribute at the same rate to Social Security throughout the year. Instead, in 2021, a cap on Social Security contributions exempts the wealthiest Americans from paying into Social Security after they have earned $142,800.
As of today, February 23, anyone who earns $1,000,000 this year gets to stop paying into Social Security. This not only keeps the Social Security Trust Fund from growing as much as it should, it also creates a regressive system. Everyone but the richest Americans must contribute 6.2 percent of their pay check to Social Security throughout the year.
Make no mistake. Millionaires benefit from Social Security just like everyone else. Everyone who contributes to Social Security, their spouses and sometimes their children, are entitled to retirement, disability, and survivor benefits. And, each year, about 20 percent of Americans receive Social Security benefits.
In 2021, the Social Security contribution amount is 6.2 percent of your income. But, if you earn more than $142,800, you effective contribution rate is far less than 6.2 percent. You make no contribution on any amount you earn above $142,800. For example, people who earn $1,000,000 or more contribute less than 1 percent of their income to Social Security.
In a decade or so, the Social Security Trust Fund will be taking in less money than it is paying out. The biggest reason is rising income inequality. Back in 1983, Social Security contributions were collected on 90 percent of total income earned. In 2018, Social Security contributions were collected on just 83 percent of total income earned.
More than half of older adults over 55 have no retirement savings. As fewer Americans earn pensions, millions of older adults rely exclusively on Social Security income in retirement. Social Security must remain strong and benefits must be improved to ensure older adults have the income to afford basic necessities and to keep them from falling into poverty.
If Congress lifted the cap on contributions to Social Security so that everyone in the US paid in 6.2 percent of their income throughout the year, not only would it be more equitable, but the Social Security Trust Fund would have the funds it needed to expand benefits.
The Center for Economic and Policy Research (CEPR) has a calculator that shows you when during the year people at different income levels stop paying into Social Security.
Here’s more from Just Care:
- Biden administration acts to ensure people with disabilities keep their Social Security benefits
- Health care costs eat into your 2021 Social Security benefits
- Your projected Medicare benefits and costs in 2021
- Debt among older Americans increasing in good part because of health care costs
- Social Security benefits are relatively small
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