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‘I Can’t Believe How Upset This Made Me’: I Earned $175K, and My Social Security Tax Stopped. Why Don’t High Earners Pay More?
By Pete Grieve MONEY RESEARCH COLLECTIVE
The payroll tax cap exists, in part, because Social Security benefits only go up to a certain level.
The income tax system in the U.S. is structured around the principle that folks in high tax brackets pay more than people in low ones. The Social Security payroll tax, however, works differently.
You likely already know that a share of a person’s wages is taxed to fund Social Security, the country’s main retirement program. The tax rate for Social Security benefits is 6.2% of covered wages for workers, and employers pay another 6.2% for a combined rate of 12.4%.
But you may not have known that high earners stop paying this tax once they hit the maximum threshold required by law. That usually means they get more take-home pay for the rest of the year. When the tax kicks back in the following January, paychecks drop. This “on” and “off” effect can catch people off guard, especially when they experience it for the first time.
“I just reached the 175k income [limit] for the year. I can’t believe how upset this made me to realize that I won’t be paying into Social Security for the rest of the year. So people that are fortunate to have high incomes don’t pay past 175k?” a Reddit user wrote in a recent post in r/SocialSecurity. “What am I missing?”
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Social Security taxes are not proportional to benefits
Here’s what happened: The worker hit the Social Security payroll tax limit, which in 2025 was $176,100 in 2025 (it is $184,500 in 2026). That means he’s no longer required to pay into Social Security.
The cap exists, in part, because Social Security benefits also only go up to a certain level. As one Reddit commenter put it, “There’s also a cap on how much can be drawn at [retirement], so they’re not paying beyond $175k, but they’re also not benefiting from it.”
It’s important to be clear about how Social Security taxes and benefits really work, says Nate Hanft, senior vice president and financial advisor at Wealth Enhancement.
Benefits are typically based on a person’s highest 35 years of earnings (indexed to inflation), which are used to calculate a monthly average. Payment amounts vary from person to person but never exceed the maximum Social Security benefit of just over $5,000. For some, that’s a dream monthly check, but for others entering retirement, it’s a fraction of what they were making before.
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“Social Security replaces around 40% of the average worker’s income in retirement,” Hanft writes in an email. “For very low-income earners, Social Security replaces around 75%. For very high-income earners, Social Security replaces around 28%.”
Due to the payroll tax cap, someone who earns several hundred thousand dollars per year pays a lower effective payroll tax rate as a share of their total wages.
None of this means the user’s feelings are wrong, and it really comes down to what one views as ethical taxation. Some on Reddit supported the idea of applying taxes to higher wage earners, as have some in Congress over the years.
With Social Security facing a funding shortfall, lawmakers are being urged to address the sustainability of the retirement program. Could a bipartisan bill to tax more — or all — income at 6.2% be a solution? Maybe.
“Most polling suggests that the average American feels the exact same way as this Redditor,” Hanft said.
Just don’t count on it happening anytime soon.
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Pete Grieve is a New York-based reporter who covers personal finance news. At Money, Pete covers trending stories that affect Americans’ wallets on topics including car buying, insurance, housing, credit cards, retirement and taxes. He studied political science and photography at the University of Chicago, where he was editor-in-chief of The Chicago Maroon. Pete began his career as a professional journalist in 2019. Prior to joining Money, he was a health reporter for Spectrum News in Ohio, where he wrote digital stories and appeared on TV to provide coverage to a statewide audience. He has also written for the San Francisco Chronicle, the Chicago Sun-Times and CNN Politics. Pete received extensive journalism training through Report for America, a nonprofit organization that places reporters in newsrooms to cover underreported issues and communities, and he attended the annual Investigative Reporters and Editors conference in 2021. Pete has discussed his reporting in interviews with outlets including the Columbia Journalism Review and WBEZ (Chicago's NPR station). He’s been a panelist at the Chicago Headline Club’s FOIA Fest and he received the Institute on Political Journalism’s $2,500 Award for Excellence in Collegiate Reporting in 2017. An essay he wrote for Grey City magazine was published in a 2020 book, Remembering J. Z. Smith: A Career and its Consequence.