10 million could pay more Social Security tax
, On Wednesday October 19, 2011, 12:53 pm EDT
Seniors got good news on Wednesday: Their Social Security checks will go up 3.6% next year because of a cost-of-living increase.That also means an estimated 10 million high-income workers may be paying a bigger tax bill.
That's because the inflation that justifies the benefit increase also will raise the amount of income subject to the portion of the payroll tax supporting Social Security.
Currently workers pay the tax on the first $106,800 of income. Starting next year, they will pay it on the first $110,100.
Normally the tax rate is 6.2% for workers and 6.2% for employers. Those who are self-employed pay the full 12.4%.
But this year workers have only paid 4.2% thanks to a temporary payroll tax holiday that Congress passed last December.
Social Security checks to rise 3.6%
It's not clear yet what the rate for 2012 will be. If President Obama has his way, it will be temporarily cut even further -- to 3.1%. Otherwise it may be maintained at 4.2% or revert to 6.2% as it is scheduled to under current law.
This year, people making $110,100 are paying $4,486 into Social Security.
Next year, if the rate reverts to 6.2%, they'd pay $2,341 more.
If the rate stays at 4.2%, they'd pay $139 more.
And if it's reduced to 3.1%, they'd pay $1,073 less.
Proponents who support an extended payroll tax holiday say letting it expire would hurt the economy.
Opponents say the idea is not very effective as economic stimulus.
To help close Social Security's long-term financing shortfall, budget experts have recommended increasing the amount of income subject to the payroll tax.
One proposal is to raise the cap to a level where the payroll tax is covering 90% of wages earned in the country, as it used to for years.
To accomplish this, Obama's fiscal commission proposed raising the cap gradually so that it covers 90% of wages by 2050. Under that proposal the taxable maximum would be $190,000 in 2020, up from the $168,000 currently projected.
