Social Security’s Payroll Tax Stops For The Rich — But Not For You

While the wealthy were sleeping off New Year’s Eve, more than 293 Americans paid all their Social Security tax for the year. Unlike the richest earners, 95% of Americans will pay for the entire year.

In 2026, the earnings cap will be $184,500, in 2025 it was $176,100 per year — it is indexed for wage inflation. All earnings above that cap escape the Social Security tax known as FICA. So does all the money poured into health insurance premiums no matter how fat the plan. A civil engineer earning $176,100 per year in 2025 looks the same as Elon Musk in the eyes of the Social Security system.

If all of Musk’s income was taxed, income from salary and annual income from wealth, he would have been able to pay all his Social Security tax in about two minutes. If the tax base remained just wage earnings, Musk would pay all of his Social Security tax by 12:15 am on New Year’s Day.

Let me drill down on my calculations. Musk’s fortune surged sharply in 2025 — Tesla and SpaceX increased valuations — to around $648 billion. Let’s say he put it all in a savings account earning 6% all income – not just earnings, but earnings from stock, bonds, etc. – for Social Security. He would pay his Social Security tax in 121 seconds by 12:01 am. If Axon Enterprise CEO Patrick W. Smith’s $164.5 million in total compensation in 2024 was taxed for Social Security, he would pay all of his FICA by about 9:14 am New Years Day. Satya Nadella of Microsoft would pay before an early New Year’s Eve dinner.

The Richest Stop Paying Social Security Tax Before You Do

In contrast, in 2024, over 160 million workers (about 92% of 184 million earners) pay Social Security taxes all year long. On the other end of the spectrum, 24 million high earners stop when they reach the cap. Under current law, only wage income is subject to FICA, not income from interest, dividends, rents, and capital gains and other kinds of income to households that masquerades as business income. These definitions mean the significant earnings above the cap, income on wealth and compensation in the form of health insurance escape FICA . Since wealth is concentrated at the top, and according to the Bureau of Labor Statistics earners at the top have health insurance worth about seven times that of those at the bottom, rules about what is income benefit the wealthiest among us.

Let me give you some idea of the magnitude with a thought experiment.

If Musk paid FICA tax on all his annual income all year I estimate he would pay average benefits for over 20 million beneficiaries out of about 70 million. This is not a policy recommendation it’s just math. I don’t know if one man paying for 25 million elders, disabled and children’s Social Security benefits would be good policy or fair policy.

Policy decisions are urgent. If Congress does nothing to get more revenue Social Security benefits (not disability benefits) will be cut by 23% in about seven years.

Social Security’s Troubles: FICA Too Low and Base Too Narrow

Longer life expectancy is not driving Social Security’s impending insolvency. Actuaries accounted for longevity gains long ago. What the actuaries did not anticipate is that top would get raises and workers below the cap generally did not and that more and more compensation was paid in health insurance, not cash which is subject to FICA. If the nation had more health coverage, family and immigrant friendly policies the Social Security system would be in better shape.

If federal policy makers raised the cap on the maximum earnings subject to Social Security taxes, and included more income — interest, business receipts, capital gains and even compensation in the form of health insurance — Social Security benefits would not be cut in 2033. And something most could agree with is good policy taxing the expanded base could not only pay for promised Social Security benefits but also eliminate poverty among all Social Security recipients.

Social Security Financing Primer

The payroll tax for Social Security (Old Age, Survivors’, and Disability benefits – OASDI) is 12.4% (statutorily split between employees and employers) and is assessed on earnings up to the earnings maximum (which increases every year). As mentioned above, in 2026 the cap is $184,500. The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits by 2033, but after that continuing program income will be sufficient to only pay 77 percent of total scheduled benefits.

In 2024 (the most recent revenue and liability figures) about 176 million Americans and their employers contributed $1.1 trillion (see Table 5 in the link) to the Social Security system.

If the earnings cap for Social Security had not existed just like it does not for Medicare, about 8% of U.S. workers would have added 43% more Social Security revenue in 2024, or about $475 billion. I derived these estimates from the Social Security wage table. See footnote. (The 293 people who collectively earn $28 billion of taxable compensation – the narrow definition of compensation in place today — would have brought in $3.5 billion if taxed on a narrow income base.)

Fixing Social Security: The Mechanics

The nation could restore Social Security solvency decades past 2033 by hiking the tax rate and expanding the tax base. Economists prefer a combination and lean towards a broad base rather than higher taxes. Social Security’s deficit is expressed by how much the payroll tax must increase to pay promised benefits for 75 years.

How much the FICA would have to increase is relatively small, just 3.82 percentage points (split evenly between employer and employee) to pay promised benefits for 75 years. Most nations target a 35-year time horizon and that would require a lower immediate increase in the payroll tax. Again, this is a thought experiment because I, and most economists, conclude raising taxes is not ideal. A combination of expanding the tax base and nudging up payroll taxes is a much better idea.

Just raising the earnings cap — according to a report by the Congressional Research Service – would eliminate most of the Social Security - -about 73%. The Committee for a Responsible Budget make a persuasive case to tax employers share of health insurance compensation (that alone would close 23% of the deficit). I use their “Social Security Reformer” online tool that simulates Social Security solvency with benefit cuts and revenue raisers. I focus on revenue raising – benefits are too small for most to be cut.

Raising the cap (and not raising benefits solves 68% of the deficit and applying the payroll tax to employer health insurance contributions would add another 23%. Those moves alone would make Social Security solvent until 2080. Their tool does not simulate how taxing income from capital and wealth, not just from workers, would affect Social Security.

Fixing Social Security: The Politics

For years, Representative John Larson (D-Conn.) has led proposals to expand Social Security benefits and revenues by expanding the tax base. The Social Security Act 2100 expands the payroll-tax base by re-applying the 12.4% Social Security payroll tax to earnings above $400,000 while keeping the existing taxable maximum in place below that, creating a temporary donut hole between the regular cap and $400,000. The donut hole is a good idea because it softens the shock to people making just about the earnings current cap and the donut hole itself has small revenue consequences. The real money is taking those earnings in the top 1%.

“The Social Security Expansion Act,” sponsored by Senators Bernie Sanders (I-Vt.) Elizabeth Warren (D-Mass.) and Representative Jan Schakowsky (D-Ill.) and Val Hoyle (D-Ore.) would raise the taxable earnings cap to $250,000, and would continue to move the system away from total dependency on payroll taxes by requiring some high-income households to contribute on pay based on some investment and certain business income

Since many of these measures solve the deficit with money left over, all the proposals make progress towards eliminating most elder poverty.

There Is Policy Hope

Congress and the President will act because the public is already there: in a June 2024 Pew Research Center survey, 79% of Americans said Social Security benefits should not be reduced in any way, and in a January 2025 national survey summarized by the National Academy of Social Insurance (NASI), 85% said benefits should not be reduced even if it means raising taxes on some or all Americans—a strong signal that voters prefer revenue increases over benefit cuts.

Last year Democrats and Republicans came together and expanded Social Security benefits. They repealed the Windfall Elimination Provision and the Government Pension Offset, restoring full earned benefits to teachers, firefighters, police officers, and other public servants who had paid into the system through covered work.

The may mean Congress is listening to the majority of Americans -- Republicans and Democrats -- who want more revenue for Social Security and do not want benefit cuts.

There is bad news.

Last year House Republicans advocated cutting Social Security by raising the full retirement age to 69 which cuts benefit for those claiming before 69.

And in July 2025, President Trump’s Treasury Secretary, Scott Bessent, described Trump accounts as a “back door for privatizing Social Security.” Privatizing Social Security would likely raise elderly poverty rates and shift financial risk onto seniors, and survivors, and people with disabilities, but no serious current proposals to privatize exist.

More bad news is the “One Big Beautiful Bill Act” (OBBBA) weakens Social Security’s dedicated revenue base by exempting some high-income earnings from payroll taxation. This accelerates trust-fund depletion and bring insolvency closer by about 6 months.

The ultimate bad news is that Congress undermines Social Security by doing nothing. Current law forces automatic benefit cuts to the level supported by current revenues once the trust fund is depleted. By simply allowing the clock to run out, opponents can let Social Security cut itself.

The fastest and most effective way to fix Social Security is to raise revenue, not cut benefits—by lifting the earnings cap and taxing employer compensation in the form of health insurance, with broader taxation of wealth-based income over time. The Social Security Trustees have done their job: they have provided the numbers and the options. Now lawmakers must do theirs. Voters overwhelmingly want a stronger Social Security system, and Congress should act accordingly.