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Social Security Taxes: This Simple Chart Shows How Much They've Soared

Social Security is an important source of retirement income, but you end up paying for it throughout your lifetime through Social Security taxes. Over time, those taxes have risen dramatically, but you might be surprised at just how much more Social Security collects in taxes now compared with past years.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at Social Security taxes over time. He notes that when the program first began, it imposed a 1% tax on earnings of up to $3,000, making the annual maximum tax $30. Since then, though, tax rates have risen to 6.2%, and the maximum earnings on which taxes are collected has soared to $117,000, making the net result a maximum annual tax of more than $7,000. Dan points out that benefits have risen by leaps and bounds since the beginning of the program, too, but it's still important to pay attention to what you pay in taxes to see whether Social Security is a good deal for you.

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Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 07, 2014, at 10:21 AM, jeepshepard wrote:

    The reason SSI taxes are going up so much is because so many people are getting on disability without paying into the system.

  • Report this Comment On July 07, 2014, at 11:00 AM, deckdawg wrote:

    "but it's still important to pay attention to what you pay in taxes to see whether Social Security is a good deal for you."

    I'm not sure why it would be important to pay attention to this. There's usually nothing you can do about it (Certain people can opt out ... such as church pastors. However, if they work any secular job, they will still pay SS taxes, and get 0 benefit).

    If you look at what the combined employer/employee SS tax has been over your career, and calculate how much you would have accumulated assuming a 6% annual return, you will just be depressed. Better not to think about ...

    And I agree with the poster above ... SSI (which is need based disability assistance) has no business being funded out of SS funds. That should be a separate program.

    And SSDI (disability benefits for folks who have payed into the system) has been grossly abused. Remove alcoholism and drug addiction as long term disabilities and clean up all the "bad back" slackers. Take a look at how the size of the disability role has ballooned over the past 10 years! There is a robust industry that has sprung up which, knowing how the system works, can get just about anybody that monthly check for life. (Just Google SS Disability and notice all the ads that come up for outfits that promise they can get you on the dole.)

  • Report this Comment On July 07, 2014, at 6:05 PM, MJFant wrote:

    The chart is a good start, but it needs to be combined with something such as average salary and adjusted for inflation. Or maybe the Y axis should be percentage of pay taken out in SS taxes.

    The video should also take into account the increase in benefits over the years. Are we overpaying for overall benefits?

    It's probably too much for a 2 and a half minute video, but this is the type of stuff that would be more beneficial info.

  • Report this Comment On July 07, 2014, at 9:30 PM, malclave wrote:

    "to see whether Social Security is a good deal for you."

    And if the answer is "no"... what then?

  • Report this Comment On July 07, 2014, at 9:38 PM, Rare440 wrote:

    I don't understand why this should matter to me. And how would it necessarily be "a good deal" when I have no choice but to pay into it? The government is going to take it out of my paycheck regardless what I think about it. And I agree with the poster who commented about the rise in SS taxes being due in large part to so many drawing disability without paying into it. The system is really screwed up.

  • Report this Comment On September 02, 2014, at 11:46 AM, USAMAN wrote:

    Hello,

    I had my own business and did fairly well. Some years better than others. When It came time for me to collect SS I was more than horrified to learned that my wife had not paid in to SS when doing our taxes over the years, even when I asked if she had.

    I always paid taxes and never not paid my share. Is there any way of paying the SS tax now?

    I could go through the years of my tax records and pay in?, or am I stuck trying not to hate my wife and more so on the 3rd of each Mo.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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