A record share of earnings was not subject to Social Security taxes in 2021: Inequality’s undermining of Social Security has accelerated


Social Security payroll taxes are not collected on earnings over a set cap. In 2021, this cap was $142,800, so workers making more than this enjoyed the benefit of zero Social Security taxes on all earnings in excess of this cap.

However, rising income inequality is skewing this tax structure even further to the benefit of top earners and diminishing funding for the crucial retirement program so many Americans rely on.

Social Security’s payroll tax—of which employees pay 6.2% and employers 6.2% each—has a cap that rises with growth in the national average wage index compiled by the Social Security Administration (SSA). In 2023, for example, the cap is set at $160,200. But since wage growth for top earners continues to outpace average wage growth, a growing share of total earnings is spilling over the cap and escaping taxation, eroding Social Security revenues.

Significant reforms to Social Security made in 1983 set the cap at a level so that 90% of all earnings would be subject to taxes. Over time, rising inequality meant that this share shrank as more earnings for higher-wage workers spilled over the cap. In 2020 and 2021, the share of earnings subject to Social Security taxes hit the lowest levels since before the 1983 reform. In fact, by 2021, the share of earnings subject to Social Security taxes was at the lowest level in nearly 50 years (since 1972).

This fact is important for at least two reasons:

  • First, Social Security is likely to be under threat in coming years as part of a general return to debates over long-run fiscal sustainability in the United States.
  • Second, a recent debate on earnings inequality trends has rightly highlighted a pronounced compression of wages among the bottom 90% of workers. But the Social Security data we highlight in this brief show that growth at the very top of the earnings distribution—the top 1% and above—continues to exceed growth of the bottom 99% of the workforce. This means there has been very little (or no) compression between earnings for the bottom 90% and those at the very top of the earnings distribution.
Earnings growth at the top in recent years

According to our latest research using SSA data, annual earnings rose fastest for the top 1% of earners (up 9.4%) and top 0.1% (up 18.5%), while those in the bottom 90% saw their real earnings fall 0.2% between 2020 and 2021. As wage growth over the cap continues to outpace average wage growth, a higher share earnings fall above the Social Security tax cap. This costs the Social Security system significant amounts of revenue relative to a scenario where wage growth was more equal and there was no growth in the share of overall earnings above the cap.

Figure A shows the share of aggregate earnings subject to the Social Security tax between 1950 and 2021. The share of earnings subject to Social Security taxes hit a record high of 90% in 1982 and 1983. This was an intentional choice made as part of a significant reform to Social Security meant to shore up its long-run actuarial balance. Because wage inequality was not visibly rising when these reforms were made, it is safe to assume that the reform was meant to set the earnings cap at 90% into the future. But this target has been undercut since by steadily rising wage inequality: In 2021, only 81.4% of all wage earnings were subject to Social Security taxes.

Falling share of earnings subject to Social Security taxes: Share of earnings subject to Social Security taxes, 1950–2021

Share of earnings above the cap
1950 79.7%
1951 81.1%
1952 80.5%
1953 78.5%
1954 77.7%
1955 80.3%
1956 78.8%
1957 77.5%
1958 76.4%
1959 79.3%
1960 78.1%
1961 77.4%
1962 75.8%
1963 74.6%
1964 72.8%
1965 71.3%
1966 80.0%
1967 78.1%
1968 81.7%
1969 80.1%
1970 78.2%
1971 76.3%
1972 78.3%
1973 81.8%
1974 85.3%
1975 84.4%
1976 84.3%
1977 85.0%
1978 83.8%
1979 87.3%
1980 88.9%
1981 89.2%
1982 90.0%
1983 90.0%
1984 89.3%
1985 88.9%
1986 88.6%
1987 87.6%
1988 85.8%
1989 86.8%
1990 87.2%
1991 87.8%
1992 86.8%
1993 87.2%
1994 87.1%
1995 85.8%
1996 85.7%
1997 85.1%
1998 84.5%
1999 83.9%
2000 83.2%
2001 84.7%
2002 86.1%
2003 85.9%
2004 84.8%
2005 84.1%
2006 83.4%
2007 82.6%
2008 83.6%
2009 85.2%
2010 84.1%
2011 83.6%
2012 82.8%
2013 83.6%
2014 83.1%
2015 82.9%
2016 83.1%
2017 83.5%
2018 83.2%
2019 83.5%
2020 82.7%
2021 81.4%
ChartData Download data

The data below can be saved or copied directly into Excel.