Millionaires are getting a late valentine from Social Security in 2017. The taxes that support the program — which provides retirement, disability, and survivor benefits to millions of Americans —only apply to the first $127,200 that someone makes at their job (up from $118,500 in 2016). Wage income above this $127,200 cap is not subject to the tax. So, someone who makes $1,000,000 a year would stop paying into the program on February 16th.
But the vast majority of the population makes under $127,200 per year, and so they pay the 6.2 percent Social Security payroll tax for the entire year. This means that those that make over $127,200 have a lower effective tax rate than those that make under the cap. Put another way, the poorer have a higher tax burden, as a percentage of their income, than the rich when it comes to Social Security. (CEPR's new report details who would pay more if the tax cap of $127,200 were scrapped.)
The calculator below (also available here) shows the last day when various wage incomes, if spread evenly throughout the year, are subject to any Social Security taxes. It’s important to note that this only applies to wage income and not other types of income, like investment income. As incomes rise, wage income often becomes eclipsed by investment income — which under current law, is not subject to Social Security taxes.
Besides $1,000,000, some other salaries that might be interesting to enter into the calculator:
$31,394: This is the estimate of the median annual earnings of an individual in the U.S. in 2015 (this assumes that these earnings are entirely subject to Social Security taxes).
$200,000: This is the upper limit of income of what former President Obama defined as “middle class,” and assumes that this income is entirely wage income.
$6,560,838: This is total compensation in 2015 that troubled Treasury Secretary Steven Mnuchin received from CIT Group, a financial services firm where he served as a Director and as Vice Chairman until March 31, 2016. This compensation included his base salary, incentives, and a tax gross-up, all counted here as wage income. (Mnuchin arrived at CIT Group after it bought his company OneWest, which was accused of widespread misconduct in its handling of foreclosures.) He likely had additional income in 2015 from other companies where he held a job, including from his hedge fund Dune Capital, from his position as a Director of Sears Holdings, and from his film investment business Ratpac-Dune Entertainment.