A Late Valentine? Millionaires Stop Paying into Social Security on February 18th

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By February 18th, someone making $1,000,000 in 2019 will have stopped paying into Social Security for the year. Social Security, which provides retirement, disability, and survivor benefits to countless Americans every year, only taxes the first $132,900 of a salary (up from $128,400 in 2018). If you make more than this cap, that income is not subject to the tax.

Most people in the United States make less than $132,900 per year, so they will pay the 6.2 percent payroll tax every time they get a paycheck in 2019. Those who make over $132,900 get a break on any income above that amount.

If a person made $50,000 in 2019, for example, they’d pay taxes until December 31st — and have an effective tax rate of 6.2 percent. But someone making $1,000,000 in 2019 would stop paying Social Security taxes on February 18th and see a bump in their pay afterwards. This person’s effective tax rate would be just 0.8 percent. The burden of Social Security taxes falls more heavily on those who make less.

Social Security’s finances also depend on the tax cap. Social Security is projected to have a shortfall in the medium term and many argue that the program, despite its importance, needs to be cut today. Part of this shortfall is because more money has been shifted above the $132,900 cap over the last few decades: in 1983, 10 percent of wage income was over the cap; in 2016, over 17 percent was. This change represents a large share of the shortfall.

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