The Link Between Social Security and Taxes
Today is April 15th. This is traditionally “tax day” – the deadline to file your federal income tax. However, this year’s deadline was extended until May 17th (due to circumstances related to the coronavirus pandemic). None the less, this is the perfect time to examine the link between Social Security and taxes.
According to the Social Security Administration’s publication Understanding the Benefits, when you work, you pay taxes into Social Security for the agency to use to pay benefits. Currently, you pay taxes of 6.2% and your employer pays 6.2% for a total of 12.4%. You see this as the FICA deduction on your paycheck. Self-employed workers are responsible for paying the full 12.4% themselves.
Social Security Trust Fund
It’s important to point out that the money you pay in taxes is not held in a personal account. Rather, Social Security uses your tax money to pay people who are currently receiving benefits. Any unused money goes into the Social Security trust fund. Your benefits, once you retire, will be paid from the trust fund. There is grave concern over the long-term solvency of our nation’s Social Security program because, compared to previous years, there’s a higher ratio of people receiving benefits, or due to in the near future, to people currently paying taxes in the workforce. There are predictions that Social Security will have to start tapping into its trust fund in about ten years and if things don’t change it could be forced to cut benefits. This means future beneficiaries will not receive the full amount they were promised.
Scrap the Cap
Another cause for concern is the way our Social Security system is set up. You pay Social Security taxes based on your earnings, up to a certain amount known as the wage cap. This year, that amount is $142,800. That means any income over that amount is not taxed. Some people believe this cap should be removed. There’s actually a nickname for this movement. It’s called Scrap the Cap.
Saving Social Security
The Seniors Trust is determined to make certain Social Security is there for current and future retirees. It is working diligently to pass the Social Security Expansion Act. When passed, this legislation will make four major changes to Social Security for retirees:
• increase benefits for most recipients by about $65 per month.
• establish a fair Social Security Cost-of-Living Adjustment (COLA) using the Consumer Price Index for Elderly (CPI-E) which takes the unique spending habits of seniors into account — particularly regarding the cost of healthcare
• increase minimum Social Security benefits to provide higher payments to seniors and greatly reduce senior poverty.
• guarantee the long-term solvency of the Social Security program.
While there is enormous backing for this bill, with unanimous support in a recent survey of voters, more work is still needed. You can show your solidarity with The Seniors Trust by signing its petition to Congress.
