How big can my Social Security tax bill be? What if I’m self-employed? Tax columnist Bill Bischoff answers your FAQs as the annual inflation rate has hit a 41-year high.
Employers, employees, and self-employed individuals all pay the Social Security tax. For many self-employed individuals, the tax equals or exceeds their federal income tax bill. And yet, the Social Security tax gets little attention. And what about the impact of inflation? Let’s discuss.
The wage ceiling is projected to rise to $155,100 next year. The projected future-year increases are shown later in this column. How much will the Social Security tax ceiling increase in future years? Good question. The Social Security tax hit on your 2022 income is expensive enough, but it’s only going to get worse in future years. Much worse. That’s because the Social Security tax ceiling will continue to go up based on the inflation factor that’s used to justify the increases. In turn, maximum Social Security tax bills for high earners will go up.
Is the Social Security system financially solid? In my opinion, no. It’s on shaky ground. Our beloved D.C. politicians have known that for years and done nothing about it. The SSA projects that the Social Security trust fund will become insolvent in 2034. So, additional Social Security tax hikes in the form of higher rates or some tax-law contortion that effectively implements higher ceilings are probably more likely than not. Terrific.
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