Social Security's funding needs to come from somewhere. And the program's primary revenue source is the money it collects in the form of payroll taxes.
If you've ever seen Social Security taxes taken out of your wages and grumbled about it, you should know that it's those very taxes that are helping to ensure that the program is there for you when you're ready to retire. So while you may not enjoy paying into Social Security, it's a necessary thing if you want to be able to collect monthly benefits later in life.
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Meanwhile, workers don't automatically pay Social Security taxes on all of their income. Each year, a wage cap is set that determines how much earnings are subject to Social Security tax.
Next year, the wage cap for Social Security taxes is rising. But unless you earn a really high salary, that change won't negatively impact your income.
The wage cap is rising in 2024
Right now, it's only workers' first $160,200 of earnings that are subject to Social Security taxes. But in 2024, the wage cap is rising to $168,600. So all told, higher earners will have to pay taxes on an additional $8,400 of income.
The good news is that salaried employees split their Social Security tax burden evenly with their employers, which minimizes that hit. Those who are self-employed, however, have to cover that entire tab themselves.
The typical U.S. worker won't be impacted
You may have heard that Social Security taxes are going up in 2024, and you may be stressing out about the idea of losing more of your income. But unless you're a higher earner, this change to Social Security should not affect you.
The Bureau of Labor Statistics reports that median income for U.S. workers is $1,118 per week. Assuming 52 weeks of work per year, that's an annual wage of $58,136. So the fact that the wage cap for Social Security tax purposes is rising from $160,200 to $168,600 may not be something for you to even think about if your earnings are more in line with the median U.S. income.
Now that said, all earnings up to the wage cap are subject to Social Security taxes. So if your annual income rises from, say, $58,000 in 2023 to $60,000 in 2024, you're going to pay a little more Social Security tax by virtue of that raise. But you're also going to pay a little bit more tax in general -- that's just what happens when your wages increase.
Of course, higher earners may be bemoaning the fact that the wage cap for Social Security taxes is rising in the new year. But seeing as how some lawmakers want to lift the wage cap completely to pump more money into Social Security, an increase of $8,400 certainly isn't as bad as it gets.
And remember, no matter how much Social Security tax you end up paying in 2024, you're doing your part to keep the program alive. So there's something to be said for that, too.
