Social Security, the program that provides retirement, disability, and survivor benefits to millions of Americans just gave a valentine to those making $1,000,000 a year.
Many people do not realize that the taxes that fund Social Security only apply to the first $118,500 of wage income in 2016. Income above the cap is not subject to the tax and workers do not pay into Social Security on that income. That means that the vast majority of the population (those making under $118,500 a year) pay the 6.2 percent Social Security payroll tax for the entire year, but the wealthy don’t. It also means that the wealthy have a lower effective tax rate.
For example, someone making $1,000,000 paid into Social Security on every day in 2016, up until and including February 13th. On the 14th — Valentine’s Day — their income was no longer subject to the payroll tax, and their paychecks for the rest of the year became heftier.
The calculator below can show when various wage incomes, if spread evenly throughout the year, reach Social Security tax freedom day — the last day when it’s subject to any Social Security taxes. It’s important to note that this only applies wage income, and not other types of income (e.g. investment income).
Besides $1,000,000, here are some salaries that might be interesting to enter into the calculator:
$28,417: This is the 50th percentile of 2014 income in the U.S., and assumes that this income is entirely wage income.
$200,000: This is the upper limit of what President Obama defines as “middle class,” and assumes that this income is entirely wage income.
$12,115,769: This is the wage income in 2014 of David Cote, CEO of Honeywell, a large American multinational conglomerate. Cote has overseen a large increase in Honeywell’s political expenditures during his time as CEO. He helped found the organization Fix the Debt, which lobbies for cutting Social Security and lowering the taxes of companies like Honeywell.