Workers: Are Your Social Security Taxes Going Up in 2024?

Most of those who receive Social Security are reasonably happy at the announcement earlier this month that their benefits will be going up in 2024. The annual announcement from the Social Security Administration set the cost-of-living adjustment (COLA) that will take effect in January at 3.2%. That's less than the big 8.7% boost that Social Security recipients got in 2023, but it still represents a larger increase than what seniors have seen in most years recently.

In order to finance those higher payments, Social Security  will tap into its trust funds. However, the vast majority of money that pays benefits for current recipients comes from payroll taxes that current employees and self-employed business owners pay. The payroll tax rate has stayed the same for years, but higher-earning workers can expect to pay more in payroll taxes as a result of one key move from Social Security.

Why most workers don't see much change in their Social Security payroll tax each year

The payroll tax for Social Security is relatively simple. Employees have 6.2% of their pay withheld to go toward funding the Social Security program. Their employers pay a matching 6.2% amount as well. For those who are self-employed, the payroll tax combines the employee and employer contributions, meaning that a total levy of 12.4% gets charged.

Image source: Getty Images.

Most workers have relatively stable incomes from year to year, and so their payroll tax withholding stays largely the same. For instance, if you got paid $50,000 in 2023 and receive a 4% raise in 2024, your total wages will be $52,000. You'll pay 6.2% Social Security payroll tax on the extra $2,000 in earnings you make, which works out to $124.

What Social Security's wage base means for payroll taxes

However, one unusual element of how Social Security payroll taxes get charged is that the 6.2% or 12.4% rate applies only up to a certain amount of earned income. If you make more than that, you don't have to pay payroll tax on the amount of earnings above the limit.

The wage base limit gets adjusted each year, based on changes in wages paid to U.S. workers. In 2024, the Social Security wage base got kicked up to $168,600, up $8,400 from 2023's amount. That's a big jump, but as you'll see below, it's less than the $13,200 increase in the wage base limit that took effect in 2023.

Data source: Social Security Administration.

Will you owe more in 2024?

Those who make less than $160,200 in both 2023 and 2024 can expect to see their Social Security payroll tax stay the same if their wages stay the same. Most of those who get a raise will pay the 6.2% rate on their additional pay.

However, those with earnings above $168,600 in both 2023 and 2024 will feel the full brunt of the tax increase. The extra $8,400 will get taxed at 6.2%, and so employees will see their total Social Security payroll tax bill rise by $520.80.

The math for those making between $160,200 and $168,600 gets more complicated. The closer you were to the upper $168,600 limit, the more in extra tax you're likely to owe.

The worst tax bills come for high-income self-employed individuals. Because they're paying both the employer and employee portions of the tax, the total increase in their taxes could amount to $1,041.60.

How many will pay more?

Salaries above $160,000 are relatively rare, but the number of people affected by these payroll tax increases due to the wage base going up is still large in absolute terms. About 10.8 million employees earn at or above the wage base limit , according to the latest available numbers from the Social Security Administration. Roughly 660,000 self-employed workers earn the maximum amount subject to Social Security payroll tax or more.

High-income earners are used to seeing the impact of the rising wage base, as it happens in most years. Nevertheless, most workers don't need to worry much about the idea that more of their hard-earned money is going toward covering Social Security payments to current retirees.