Many Americans in Washington have been on high alert as a new wave of policy discussion have come to the surface. There are many lawmakers that are considering raising Social Security taxes to ensure that long-term sustainability of the program. Even though this move could protect benefits for the future, it could also affect how much workers take home.
Why Is a Tax Hike on the Table?
Social Security is funded and managed by payroll taxes which falls under the Federal Insurance Contributions Act (FICA). Currently, workers and employers each pay 6.2% of wages up to a certain income cap ($168,600 in 2024), for a total of 12.4%. Self-employed workers pay the full 12.4% themselves.
The program is seemingly facing a long-term funding gap. The Social Security Trustees’ 2024 report estimates that the trust fund reserves will be depleted by 2033 unless changes are made. Thereafter, the program would potentially only be able to pay about 77% of scheduled benefits with incoming payroll taxes.
In order to avoid decreasing benefits, many law makers are considering the option of increasing taxes.
How Much More Could You Pay?
Though no plan is set in stone, various proposals have been floated by lawmakers and policy experts. Some of the possibilities include:
- Raising the payroll tax rate from 6.2% to 7.2% for both workers and employers
- Eliminating or increasing the income cap on taxable earnings
- Applying a surtax on high earners, such as a 2% additional tax on income over $250,000
Employers would also be impacted, and self-employed individuals would bear the brunt of any increase, since they cover both portions of the tax.
What It Means for Your Paycheck
A tax increase would have a direct effect on your net pay. While 1% or even 2% may not seem like a large number, it can add up, particularly for lower- and middle-income workers who are already experiencing budget constraints.
At the same time, a higher contribution to Social Security could be viewed as an investment in future financial stability. Raising taxes now may prevent a scenario in which future retirees—including today’s younger workers—receive sharply reduced benefits.
Public Opinion: Divided and Cautious
According to recent data, many Americans support the issue of protecting Social Security benefits, even if it means increasing payroll taxes, but this support varies by age and income level.
Younger workers, who are already sceptical about whether Social Security will exist when they retire, tend to favour structural reforms over tax hikes. Older workers and retirees, on the other hand, are more likely to support immediate funding fixes, including higher payroll taxes, to safeguard their expected benefits.
Is This the Only Solution?
No. While increasing payroll taxes is one of the more straightforward ways to strengthen the program, it’s not the only option. Lawmakers are also debating:
- Raising the full retirement age
- Making changes to Cost-of-Living adjustments (COLA)
- Means-testing benefits for high earners
- Encouraging private retirement savings alongside Social Security
A comprehensive reform package may ultimately include a combination of these measures, balancing increased revenue with spending adjustments.
What Should You Do Now?
While nothing has been passed yet, workers should stay informed and start planning. Consider:
- Reviewing your monthly payslips to understand how much you already contribute
- Factoring potential changes into your long-term financial planning
- Increasing contributions to personal retirement accounts (like 401(k)s or IRAs)
- Advocating for solutions that align with your values and financial goals
Social Security remains one of the most vital programs in the U.S., and decisions made in the next few years will shape its future for decades. Whether taxes rise or not, preparing now is the best way to safeguard your financial future.