The Boring Newsletter, 9/7/2025

You Should Understand Your Largest Asset: Social Security

Hi Friendos,

The very first article I wrote for this website was called “You Should Understand Your Largest Expense.” I asserted that most people think their largest expense is housing, but in fact it is usually taxes. Well, it turns out that most Americans think their largest asset is their home or investment portfolio, but in fact it is usually Social Security! This is so important. You must understand at least a few basic things about Social Security, because lots of politicians and moneyed interests want to take it from us and we cannot let them! As I noted in a prior article:

According to the Social Security Administration (“SSA”), “surprisingly high percentages of young workers consistently expect that they will not receive [any] future Social Security benefits” even though “nearly all workers [~96%] will eventually receive Social Security benefits.”

How can we have the will to fight for something if we have no clue how it works? A solid understanding is crucial.

I’ve written about Social Security a few times before:

• 12/10/2023: I encouraged you to establish an online account with the SSA, review what the SSA thinks your earnings were in prior years, and contact the SSA to fix any errors you spot. Then, log on once a year to check the most recent info.
• 1/13/2024: I discussed how you need 40 “credits” to qualify for retirement benefits and how those benefits are determined by a formula that looks at your specific earnings history.
• 1/21/2024: I discussed other types of benefits paid by the SSA, namely, disability benefits and survivor benefits, and provided my views that the naming of the “trust fund” that pays SSA benefits was a specific political choice and that the notion those “trust funds” are “running out of money” is unserious hokum!
• 1/28/2024: This dug further into Social Security accounting and the manufactured, decades-long “crisis” politicians and their moneyed backers use to justify proposals for benefit cuts. I quoted at length from Edwin L. Dale, Jr’s outstanding piece, “The Security of Social Security,” which was published in January 1973 and remains shockingly fresh and relevant today.

I am definitely not an expert on Social Security, but maybe I can share some info about it that will be new to you. Today’s focus: the regressive Social Security tax brackets. That’s right! Social Security tax has its own income tax brackets that are different from the brackets for federal income tax. They both get adjusted a bit each year for inflation.

Here are the Social Security tax brackets for 2025:

• Employee wages up to $176,100: 6.2% tax rate
• Employee wages above $176,100: 0% tax rate

If you earn more than $176,100 in wages in a year? No extra tax owed! Put differently, the top marginal tax rate for Social Security is 0%. That means a W-2 employee will pay up to $10,918.20 in Social Security tax out of their paychecks, but no more, even if they earn $200k or $1 million. It is a regressive tax.

Don’t take my word for it, here’s what the SSA press release stated about updating this amount for 2025 (emphasis added): “Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) is slated to increase to $176,100 [for 2025] from $168,600 [for 2024].” I think most people don’t know that Social Security tax is structured so the high earners only have to pay up to a capped amount each year. That’s pretty interesting!

Employers pay the same amount of Social Security tax on your wages, so people talk about the “employee portion” and the “employer portion” of Social Security taxes. Self-employed people pay both parts for a total tax rate of 12.4% on their first $176,100 of income.

If you have a W-2 job, here are two ways you can see this at work in your own income:

• Method #1: go look at your most recent paystub. Find the dollar amount taken out for Social Security tax. That amount might be called “Social Security,” “Social Security Employee Tax,” “SS,” “OASDI” (Old Age, Survivors, and Disability Insurance), “Fed OASDI/EE,” “Soc Sec” or something similar. After you find the amount taken out for Social Security tax, divide it by the gross pay amount shown on that same paystub. If you make less than $176,100 per year, this should equal 6.2%.
• Method #2: look at last year’s W-2. Box 4 shows the amount of Social Security tax withheld from your paychecks during the year. Box 3 shows your wages that were subject to Social Security tax. Divide the box 4 number by the box 3 number. It will equal 6.2%. The reason we need to report the amount of wages subject to Social Security tax in its own box is because it can be different from your total overall wages and different from the amount of your wages subject to other taxes.

Here are a few examples of how the amount of Social Security tax is calculated for people with different wages:

• Person #1: wages of $50k/year. They will have a total of $3,100 in Social Security tax withheld from their paychecks over the course of the year (= $50,000 * 6.2%).
• Person #2: wages of $150k/year. They will have a total of $9,300 in Social Security tax withheld during the year (= $150,000 * 6.2%). They earn 3 times as much as Person #1 and pay 3 times as much in Social Security tax.
• Person #3: wages of $300k/year. They will have $10,918.20 in Social Security tax withheld during the year (= $176,100 * 6.2% + $123,900 * 0%). They earn 6x Person #1’s wages but only pay 3.5x in Social Security tax. They earn 2x Person #2’s wages but only pay 1.2x in Social Security tax.

I have seen conservatives say that “technically, Social Security tax is regressive but…” Hello?! This is the literal definition of a regressive tax: a tax that is a higher percentage of income for lower income people than for higher income people.

If there are any aspects of Social Security you’d like to know more about, or think could be better understood by others, reply and let me know. If you’ve thought it, others have too.

-Stephanie