How Much Money Will I Pay into Social Security? | Free the Facts (2024)
Over your lifetime, you’ll likely pay hundreds of thousands of dollars into Social Security — but what you get out will depend on a number of factors.
When you’re working, you’ll pay what’s known as the Federal Insurance Contribution Act (FICA) tax. It amounts to a 12.4 percent tax on your earnings; though for accounting purposes, it’s understood that you contribute 6.2 percent (“the employee’s share”), while your employer contributes the other 6.2 percent (“the employer’s share”). But, if you’re self-employed, you’ll pay the full amount directly to the IRS.
If you make enough money, you’ll hit what’s called the “taxable maximum” - and stop paying into Social Security for the year. The taxable maximum normally increases each year. (For reference, it’s set at $168,600 for 2024.)
In other words, if you are lucky enough to make $175,000 in 2024, you would pay a 12.4 percent Social Security tax on every dollar earned up to $168,600, but then stop paying the Social Security tax after that. You would, of course, still pay income and Medicare payroll taxes on every dollar earned, but making more than the taxable maximum means that your marginal tax rate falls.
To get a sense of just how much you’ll pay in taxes — and what you’ll get in return — a helpful analysis was completed by C.E. Steuerle and Karen E. Smith of the Urban Institute. They break it down by marital status and the number of workers in your household. But we’ll walk you through a few examples here based on their analysis:
Let’s keep the first one simple: A single person who made the average wage (about $66,100 in 2023 dollars) and retired in 2020 would have paid about $367,000 into Social Security and would then receive about $383,000 in lifetime benefits.
It’s worth pointing out that, above a certain level of income, you’ll pay more into Social Security than you’ll get out. For instance, a single person with higher lifetime earnings (about ($105,800 a year) who retired in 2020 would have paid about $588,000 and would receive around $508,000 in lifetime benefits.
A single person who hit the taxable maximum throughout their lifetime would see the biggest difference. Retiring in 2020, they would have paid $871,000 and would receive $618,000 in lifetime benefits.
The numbers look a bit different if you get married and whether or not you’re both working. A married couple who both earned the average wage over their lifetime and retired in 2020 would have paid in around $735,000 to Social Security and receive about $812,000 in benefits.
Since Social Security pays benefits to spouses and dependents, even if they don’t pay into the program on their own, the numbers shift a bit when you look at a married couple with only one working spouse. For example, a married single-income couple who hit the taxable maximum would have paid $871,000, but they’d receive $1,055,000 in lifetime benefits. They get more because of the “spousal benefit,” where non-working spouses get a benefit equal to a portion of the working spouse’s benefit.
So while the amount you pay into Social Security is essentially based on your lifetime earnings, the amount you get out depends on your marital status, your dependents, if you retire early or work past your full retirement, and how wage inflation changes over time. And as the debate heats up over how to save the program for future generations, the question of whether Social Security benefits are fair and adequate will become ever more important.
The Social Security tax rate for employees and employers is 6.2% of employee compensation each for a total of 12.4%. The Social Security tax rate for those who are self-employed is 12.4%. Self-employed people must pay shares. There's a limit, or tax cap, on the amount of earned income that's subject to taxation.
It amounts to a 12.4 percent tax on your earnings; though for accounting purposes, it's understood that you contribute 6.2 percent (“the employee's share”), while your employer contributes the other 6.2 percent (“the employer's share”). But, if you're self-employed, you'll pay the full amount directly to the IRS.
There is no age at which you will no longer be taxed on Social Security payments. So, if those payments when combined with your other forms of income, exceed one of the two thresholds, then you will have to pay at least federal taxes on either 50% or 85% of the benefits you receive.
You will pay federal income taxes on your benefits if your combined income (50% of your benefit amount plus any other earned income) exceeds $25,000/year filing individually or $32,000/year filing jointly.
Substantial income includes wages, earnings from self-employment, interest, dividends, and other taxable income that must be reported on your tax return. Between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits.More than $34,000, up to 85% of your benefits may be taxable.
Social Security benefits are typically computed using "average indexed monthly earnings." This average summarizes up to 35 years of a worker's indexed earnings. We apply a formula to this average to compute the primary insurance amount (PIA). The PIA is the basis for the benefits that are paid to an individual.
You can elect to have federal income tax withheld from your Social Security benefits if you think you'll end up owing taxes on some portion of them. Federal income tax can be withheld at a rate of 7%, 10%, 12%, or 22% as of the tax year 2022.
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
• If you become disabled before your full retirement age, you might qualify for Social Security disability benefits. You must have worked and paid Social Security taxes in five of the last 10 years.
Generally, if Social Security benefits were your only income, your benefits are not taxable and you probably do not need to file a federal income tax return.
For retirees 65 and older, here's when you can stop filing taxes: Single retirees who earn less than $14,250. Married retirees filing jointly, who earn less than $26,450 if one spouse is 65 or older or who earn less than $27,800 if both spouses are age 65 or older.
You would not be required to file a tax return. But you might want to file a return, because even though you are not required to pay taxes on your Social Security, you may be able to get a refund of any money withheld from your paycheck for taxes.
Craig's You Earned It, You Keep It Act would eliminate all federal taxes on Social Security benefits beginning in 2025 – putting money back into the pockets of retirees. The bill would be paid for by raising the cap on the Social Security payroll tax, so higher-earning Americans continue paying into Social Security.
Americans are set to receive a Social Security check worth up to $4,800 today, but not all seniors are happy about the increase in monthly payments. Social Security benefits grew by 3.2 percent this year, in accordance with this year's calculated cost of living adjustment (COLA).
If you're planning for retirement, one of your key questions is how much you can earn from Social Security – what's the maximum you can get? As of January 2024, the maximum benefit you can receive at full retirement age is $3,822 per month.
If you work for an employer, you and your employer each pay a 6.2% Social Security tax on up to $168,600 of your earnings. Each must also pay a 1.45% Medicare tax on all earnings. If you're self-employed, you pay the combined employee and employer amount.
The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2024, your maximum benefit would be $3,822. However, if you retire at age 62 in 2024, your maximum benefit would be $2,710. If you retire at age 70 in 2024, your maximum benefit would be $4,873.
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