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1 1 (March 27, 2023)

handle is hein.crs/govelat0001 and id is 1 raw text is: Congressional Research Service informing the legislative debate since 1914 0 March 27, 2023 Social Security Taxable Earnings Base: An Overview Introduction Social Security payroll taxes are levied on covered earnings up to a maximum level set each year. This maximum is known as the contribution and benefit base and commonly referred to as the taxable earnings base or the taxable maximum. In 2023, an estimated 183 million workers will pay into Social Security via Federal Insurance Contributions Act (FICA) taxes or Self-Employment Contributions Act (SECA) taxes, or both, on their covered wages and self- employment income. Both employers and employees contribute payroll taxes at the FICA rate, and SECA taxes are paid by the self-employed. Both payroll taxes have three components: Old Age and Survivors Insurance (OASI), Disability Insurance (DI), and the Hospital Insurance (HI) part of Medicare (see Table 1). The OASDI (combined OASI and DI) payroll tax is levied on covered earnings up to $160,200 in 2023. The HI payroll tax is levied on all covered earnings. (For more information on Medicare finance, see CRS Report R43122, Medicare Financial Status: In Brief.) Table 1. 2023 Social Security and Medicare Tax Rates Tax Rates FICA SECAa Old-Age and Survivors Insurance 5.30% 10.60% + Disability Insurance 0.90% 1.80% = Subtotal Social Security 6.20% 12.40% (OASDI) tax rate + Hospital Insurance tax ratea 1.45% 2.90% Total FICA and SECA Rates 7.65% 15.30% + Employer contribution 7.65% Combined Employee and 15.30% Employer FICA Tax Rates Source: Social Security Administration, Social Security and Medicare Tax Rates, and Social Security Tax Rates. Notes: FICA = Federal Insurance Contributions Act; SECA = Self Employed Contributions Act; OASDI = Old Age, Survivors and Disability Insurance; and HI = Hospital Insurance (Medicare Part A). a. Certain adjustments and income tax deductions apply. b. Beginning in 2013, individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9% in Medicare taxes, which is not reflected in the tax rates shown in the table. Since 1982, the Social Security taxable earnings base has risen at the same rate as average wages in the economy. By law, the base is raised whenever an automatic benefit increase-a cost-of-living adjustment (COLA)-is payable to Social Security beneficiaries, assuming wages have risen. (For example, there was no increase in the base from 2015 to 2016 because there was no COLA increase for 2016.) The taxable earnings base serves as a cap on both contributions and benefits. As a contribution base, it establishes the maximum amount of a worker's earnings that is subject to the OASDI payroll tax. In 2023, the maximum amount a wage or salary worker directly contributes to Social Security is $9,932.40 (the worker's employer contributes an equal amount), whereas a self- employed individual contributes a maximum of $19,864.80. As a benefit base, it establishes the maximum amount of earnings used to calculate benefits. If a worker earned at or above the earnings base for his or her entire career and retired in 2023 at the full retirement age, his or her annual benefit would be $43,524 ($3,627 per month). However, very few Americans receive the maximum benefit, as it is rare to have had such consistently high earnings over a lifetime. Workers with Earnings Above the Taxable Earnings Base According to the Social Security Administration, a small share of workers earn above the taxable earnings base each year. In 2020, among 174.5 million covered workers, about 6% of workers (or 10.8 million) earned more than the taxable earnings base. Most of the individuals earning above the base were men (7.6 million individuals, or nearly 71% of covered workers with earnings above the base). Approximately 9% of all male workers and 4% of all female workers had earnings above the maximum. The vast majority of individuals with earnings above the base were wage and salary workers (roughly 96% of covered workers with earnings above the base). Approximately 6% of individuals who earned above the base were self-employed. A relatively small group of workers who earned above the base (190,000 individuals, or 2% of covered workers with earnings above the base) have earnings in both wage and salary employment and self-employment. History of the Taxable Earnings Base Under the legislation enacted in 1935, the taxable earnings base was set at $3,000 per year per employer. Prior to 1974, increases to the taxable earnings bases were specifically legislated on an ad hoc basis. In 1972, P.L. 92-336 established procedures that increased the taxable earnings base automatically as a means of financing COLAs for Social Security beneficiaries, though the adjustment to the taxable earnings base was tied to average wage growth.

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