Social Security is commonly thought of as your income during retirement, however, it is something that you deal with and sustain throughout your working career. This is because of the way that the program is set up: you pay into the dedicated Social Security payroll tax during your working years, then later once your retire, you claim your monthly benefits from the Social Security Administration (SSA).
There is, however, a limit in place regarding how much of your earnings are taxable and this is known as the “maximum taxable earnings”, but it is also often referred to as the wage cap. For 2025, the wage cap is currently standing at $176,100, however this wage cap is subject to fluctuations on a year over year basis as a result of changes in the national average wage index.
In the near future, wage cap could be raised further for reasons that extend beyond a change in the national average wage index. This is due to the estimates provided by the Social Security Board of Trustees in the latest annual report. A major trust fund is projected to reach insolvency by 2033 if Congress does not act now. If this shortfall comes to pass, benefits will be hit with an automatic cut. As such, lawmakers are currently debating potential solves to prevent this funding crisis — and raising or eliminating the wage cap is included amongst the proposed solutions.
Here is what you need to know.
How does the Social Security wage cap work?
The Social Security program has three sources of funding. The primary source of funding is the dedicated Social Security payroll tax which employees contribute towards during their working years. In specific, a total of 12.4% of a workers earnings are put towards the Social Security payroll tax, however, the worker will usually only pay in 6.2% and their employer will cover the other 6.2%. Self-employed individuals will likely have to cover the 12.4% themselves, however 6.2% can be a deductible.
However, as noted above, there is also a wage cap in place. This means that once your income exceeds the stipulated threshold, the excess income will not be considered when you are paying into the Social Security payroll tax. For 2025, the maximum taxable earnings is $176,100 which means that you will never pay Social Security taxes on any income higher than this figure, regardless of how many jobs you may have.
According to estimates from the Social Security Board of Trustees, the maximum taxable earnings is expected to face an increase in 2026, bringing it up from $176,100 to $183,600. The effects of this increase will only be felt by those earning in a similar income bracket, however, this will mean more revenue for the program at large.
Projected shortfall
Social Security has two major trust funds that supplement the payroll tax revenue: the Old Age and Survivors Insurance trust fund and the Disability Insurance trust fund. According to the annual report from the Board of Trustees, the Old Age and Survivors Insurance trust fund is projected to reach insolvency by 2033 if change is not enacted now. If this shortfall does come to pass, an automatic cut to benefits will be triggered because the remaining revenue in the program will only be sufficient to cover 77% of all scheduled benefits.
In order to prevent this matter as lawmakers discuss possible solutions, the elimination of the wage cap entirely has been brought up. Alternatively, the wage cap could also be raised much higher than what the national average wage index dictates.
“Raising Social Security’s wage cap by subjecting earnings above $250,000 to taxes could produce an additional $1.6 trillion in savings for the program between 2026 and 2035, closing 70% of Social Security’s 75-year solvency gap,” the Committee for a Responsible Federal Budget noted.
However, due to the very nature of how the Social Security program is set up, eliminating the wage cap could ultimately result in higher income earners inadvertently subsidizing the benefits of lower income earners. This is because the SSA has a maximum payable amount in place with regards to benefits.
As things currently stand, nothing has been set in stone just yet. However, the 2026 wage cap announcement will soon be made in October.