A bill has been introduced in Congress that, if passed, would substantially increase the amount of Social Security tax that some taxpayers pay. In addition, the Social Security Administration (SSA) recently projected what the Social Security wage base will be in 2023 and future years.
On June 9, 2022, the “Social Security Expansion Act” was introduced in both the Senate and House by Senator Bernie Sanders (I-VT) and House Representative Peter DeFazio (D-OR). If passed, the bill would increase the Social Security taxable wage base and add a separate investment income tax, among other actions.
Senator Sanders issued a press release explaining the proposed law. One provision would apply the combined Old-Age, Survivors, and Disability Insurance (OASDI) or Social Security payroll tax rate (currently, 12.4%) on earnings above $250,000, effective for 2023 and later. It would also tax all earnings once the current-law taxable maximum exceeds $250,000 and wouldn’t credit the additional taxed earnings for benefit purposes.
The SSA said that, under the proposal, workers with covered earnings in excess of the higher of $250,000 and the current-law taxable maximum would, along with their employers, pay additional payroll taxes. Because the payroll tax would additionally apply to annual earnings in excess of $250,000 starting in 2023, payroll tax liability would increase in 2023 and later.
The SSA included a table and explained that a worker with earnings at twice the current $147,000 taxable maximum in years 2040, 2060, and 2090 would have payroll tax liability increased by 100%.
Another provision in the bill would apply a separate 12.4% tax on investment income as defined in the Affordable Care Act (ACA), payable to the OASI and DI Trust Funds with unindexed thresholds as in the ACA, effective for 2023 and later. The ACA thresholds are $200,000 for a single filer and $250,000 for a married couple filing jointly. Under this provision, there would be no limit on the amount taxed.
The SSA estimates that the enactment of this provision would reduce the long-range OASDI actuarial deficit by 1.95% of taxable payroll and would reduce the annual deficit for the 75th projection year (2096) by 2.31% of payroll.
On June 9, 2022, the SSA issued a letter in response to Senator Sanders’ and Representative DeFazio’s request for estimates of the financial effects on the legislation they introduced. The SSA stated that the estimates they provided reflect the intermediate assumptions of the 2022 Trustees Report.
According to the SSA, the enactment of the provisions in the legislation “would extend the ability of the OASDI program to pay scheduled benefits in full and on time throughout the 75-year projection period.” It added that “the date of projected depletion of the combined OASI and DI Trust Fund reserves is 2035 under the intermediate assumptions of the 2022 Trustees Report.”
On June 2, 2022, the SSA’s Office of the Chief Actuary issued a report that projects the Social Security taxable wage base will increase to $155,100 next year. The SSA provides three forecasts for the wage base (intermediate, low and high cost). All forecasts predict an increase from $147,000 in 2022 to $155,100 in 2023.
Future intermediate forecasts are: $165,300 in 2024; $173,400 in 2025; $180,600 in 2026; $188,100 in 2027; $195,600 in 2028; $203,100 in 2029; $210,600 in 2030 and $218,400 in 2031.
Actual annual increases to the Social Security wage base are announced in October based on current economic conditions. As a result, the forecasts, especially the longer-range ones, may change.
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Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.