Skip to main content

Sign up for our newsletter.

Quality journalism. Progressive values. Direct to your inbox.

Social Security is projected to have a shortfall in the medium term and many argue that the program, despite its importance, needs to be cut today. (Photo: Reuters)

Social Security is projected to have a shortfall in the medium term and many argue that the program, despite its importance, needs to be cut today. (Photo: Reuters)

A Late Valentine? Millionaires Stop Paying into Social Security on February 18th

The burden of Social Security taxes falls more heavily on those who make less

By February 18th, someone making $1,000,000 in 2019 will have stopped paying into Social Security for the year. Social Security, which provides retirement, disability, and survivor benefits to countless Americans every year, only taxes the first $132,900 of a salary (up from $128,400 in 2018). If you make more than this cap, that income is not subject to the tax.

Most people in the United States make less than $132,900 per year, so they will pay the 6.2 percent payroll tax every time they get a paycheck in 2019. Those who make over $132,900 get a break on any income above that amount.

If a person made $50,000 in 2019, for example, they’d pay taxes until December 31st — and have an effective tax rate of 6.2 percent. But someone making $1,000,000 in 2019 would stop paying Social Security taxes on February 18th and see a bump in their pay afterwards. This person’s effective tax rate would be just 0.8 percent. The burden of Social Security taxes falls more heavily on those who make less.

Social Security’s finances also depend on the tax cap. Social Security is projected to have a shortfall in the medium term and many argue that the program, despite its importance, needs to be cut today. Part of this shortfall is because more money has been shifted above the $132,900 cap over the last few decades: in 1983, 10 percent of wage income was over the cap; in 2016, over 17 percent was. This change represents a large share of the shortfall.

Scrapping the payroll tax cap entirely and making everyone pay the same tax rate, together with modest changes to the program (or a shift in perspective from deficit politics), could eliminate the shortfall entirely and allow for expanding benefits, which are as necessary as ever.

To better illustrate these points, CEPR has updated the calculator below (also available here) which shows the last day when salaries, if spread evenly throughout the year, are subject to Social Security taxes.[1] It also displays how much taxes are levied based on current law, and how much would be levied if the payroll tax cap were scrapped.

Salaries which might be interesting to enter into the calculator are:

$35,000: This is around the median annual earnings of an individual in the United States. (The vast majority of earnings at the level is wage income.)

$10,000,000: This is income at which Representative Alexandria Ocasio-Cortez’s proposed 70 percent marginal tax would take effect.

$1,500,000 and $21,800,000: This is the estimated wage income of billionaire Howard Schultz, former CEO of the coffee chain Starbucks. Although no longer CEO of Starbucks, he was on track to receive a similar salary in his retirement. His last known salary totaled $21,800,000 (with a $1,500,000 base salary). Schultz is in the news as he recently decided to explore running for president in 2020. Schultz has, in the past, distinguished himself with his focus on deficits and debt. Part of this focus has included cuts to Social Security and Medicare.

Check out the calculator here.


This work is licensed under a Creative Commons Attribution 4.0 International License

Kevin Cashman

Kevin Cashman lives in Washington, D.C., and researches issues related to domestic policy at the Center for Economic and Policy Research. Follow him on Twitter: @kevinmcashman or read his blog here.

We've had enough. The 1% own and operate the corporate media. They are doing everything they can to defend the status quo, squash dissent and protect the wealthy and the powerful. The Common Dreams media model is different. We cover the news that matters to the 99%. Our mission? To inform. To inspire. To ignite change for the common good. How? Nonprofit. Independent. Reader-supported. Free to read. Free to republish. Free to share. With no advertising. No paywalls. No selling of your data. Thousands of small donations fund our newsroom and allow us to continue publishing. Can you chip in? We can't do it without you. Thank you.

Citing Need for 'New, Inclusive Leadership,' Chuy García Files for Chicago Mayoral Race

"We have an opportunity to elect a trusted and experienced leader with a history of building coalitions and a vision for a brighter future for all Chicagoans," said the Democratic congressman.

Jessica Corbett ·


On Cyber Monday, Climate Activists Take Aim at Fashion Industry

"The fashion industry is one of the largest polluting industries globally. We can all do better, but it's on companies to make this industry better for workers, the planet, and consumers alike."

Jessica Corbett ·


Biden Accused of Selling Out Rail Workers by Urging Congress to Prevent Strike

"Biden is siding with corporate rail bosses over the rank-and-file workers who voted against this agreement," said one progressive commentator after the president urged lawmakers to take action to force through a deal without paid sick leave.

Brett Wilkins ·


Analysis Finds State Legislators Proposed 306 Bills Targeting Trans People in Past 2 Years

"Right-wing state lawmakers are obsessed with taking away the rights of trans people and we're obsessed with knocking them out of public office," said one rights group.

Julia Conley ·


Biden Mulls Sending Long-Range Missiles to Ukraine

While Ukrainians and supporters welcomed Boeing's proposal to arm Ukrainian forces with long-range precision-guided bombs, one anti-war voice accused the American military-industrial complex of "dictating the U.S. foreign policy and profiteering from wars."

Brett Wilkins ·

Common Dreams Logo