The majority of the money for Social Security benefit programs comes from payroll taxes paid by American workers and their employers. Social Security and Supplemental Security Income (SSI) benefits will increase by 8.7% in 2023. The average monthly Social Security benefit will increase from $1,681 to $1,827, and the maximum federal SSI monthly payment to an individual will increase from $841 to $914. The maximum federal SSI monthly payment to a couple will increase from $1,261 to $1,371 in 2023. The amount of earnings that is required in order to be credited with a quarter of Social Security coverage will increase from $1,510 to $1,640. The 2024 Trustees Report also estimates the Old-Age and Survivors Insurance Trust Fund (OASI) will deplete its asset reserves by 2033.

In addition to investing as much as possible in your tax-advantaged retirement accounts for as long as possible, also consider diversifying into real estate. You can buy your primary residence and you can also invest in private real estate funds for further diversification. Developing passive income streams provides a better return for your buck thanks to no FICA taxes and lower long-term capital gains tax rates. The way to pay as little FICA tax as possible is to make as little wage income as possible.

• Local tax agencies should provide the local tax requirements where your business is based.
• All self-employed net earnings up to the wage cap are subject to Social Security tax.
• Stay tuned to various proposals whether in Congress or from the incoming administration calling for an end to federal taxes on Social Security benefits.
• The overall long-term growth of the SSI program occurred because of an increase in the number of disabled recipients, most of whom are under age 65.

Number of Recipients, 1974–2022

Unfortunately, this means that if you’re self-employed, you have to pay both sides of the tax on your earned income, up to the annual maximum — a 12.4% tax rate. You’re also responsible for paying the employee and employer portions of the Medicare tax, which is applied to all earned income. Estimated average monthly Social Security benefits for all retired workers payable in January 2023 will increase to $1,827, up from $1,681. In total, the benefit increases will cost $196 billion over a decade, according to the Congressional Budget Office.

Diversify Into Real Estate For More Passive Income

The government is going to be far less likely to raid individual account holders than the SSI pool. Hi Karthik, Claire was spot on with her response above that thankfully the social security cap is on an employee level not per couple. If you made $200k and your wife made $50k for the year, you would pay 6.2% up to $128,400 and your wife would pay 6.2% on $50k.

That will mostly be a concern for people who are on the cusp of the income thresholds, he said. So, let’s dive into a couple of the reasons why this myth has taken hold and look at what really impacts whether the IRS will tax some of your Social Security benefits. For example, the U.S. birth rate is at a historic low and has declined by 17% since 2007. Though a persistent decline in births doesn’t have an immediate impact on Social Security, it’s expected to weigh down the worker-to-beneficiary ratio over what is the max social security tax for 2023 the next 10 to 20 years. This comes atop the ongoing retirement of baby boomers, which is also lowering the worker-to-beneficiary ratio. Unfortunately, this critical program to tens of millions of Americans has seen its own financial foundation weaken over many decades.

However, if you retire at age 62 in 2024, your maximum benefit would be $2,572. If you retire at age 70 in 2023, your maximum benefit would be $4,555. FICA stands for Federal Insurance Contributions Act and consists of a Social Security tax and a Medicare tax. Social Security tax is 6.2% and Medicare tax is 1.45% for a combined FICA tax rate of 7.65%. Rocky Mengle was a Senior Tax Editor for Kiplinger from October 2018 to January 2023 with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, Rocky worked for Wolters Kluwer Tax & Accounting, and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals.

New Awards to Workers, 1982–2022

55.6 was the average age of disabled-worker beneficiaries in 2022. Combined income is determined by adding your AGI to any nontaxable interest and half of your Social Security benefits for the year. Before you can figure out how much you’ll be taxed, you’ll first need to have your AGI (adjusted gross income) and combined income calculated. The 2024 COLA increase wasn’t nearly as high as the one before it, though. In 2023 we saw an 8.7% COLA increase, on top of which the tax brackets stayed largely unchanged, which could have boosted recipients into a higher bracket more easily.

Long story short, wage growth for high earners is outpacing the near-annual increase in the payroll tax cap, leading to more wages and salary “escaping” the payroll tax over time. Sixty-six million beneficiaries were in current-payment status; that is, they were being paid a benefit. Seventy-four percent of those beneficiaries were retired workers and 12% were disabled workers. The remaining 15% of beneficiaries were survivors or the spouses and children of retired or disabled workers. We’re headed into another tax season and Social Security recipients who earned additional income outside of their monthly benefits check may have to pay taxes this year. Another factor that could make a beneficiary owe taxes is the COLA increase for 2024.

Most of the payroll taxes collected from today’s workers are used to pay benefits to today’s recipients. In 2022, the Old-Age and Survivors Insurance and Disability Insurance Trust Funds collected $1.22 trillion in revenues. Of that amount, 90.6% was from payroll tax contributions and reimbursements from the General Fund of the Treasury and 4.0% was from income taxes on Social Security benefits.

The tax amounts were jolting based on how inefficient the government was and still is with regards to spending our money. It’s not a big secret that Social Security isn’t in the best financial shape. In fact, the latest estimates call for Social Security to completely run out of money in its trust funds by 2035. Here, we’ll discuss how this number is used when computing the Social Security tax of higher-earning Americans, and what the maximum Social Security tax you might have to pay in 2023 will be.

What is your current financial priority?

Yet it would be far better for anyone with even a rudimentary understanding of finance to be personally investing that money, imo. The most fervent opposition of my position nearly always immediately state that the average American is too stupid to handle their own money.I think that both you and I can guarantee a negative return on our investment here Sam. The failure to allow a privatization option for SSI during the Bush administration is one of the most disappointing government failures in the last 20 years, in my mind. The only way you end up “winning” in this game is living into your late 80s early 90s, and even then you probably would have done better had you invested in a simple S&P index. The best solution to this situation isn’t one that is being talked about now, and that is the suggestion that was floated in the 90s. Give younger investors the option to privatize (with the employer’s match), older investors can stay in the system if they want.