Social Security lifts millions of seniors, children, disabled individuals and other vulnerable populations out of poverty, but it covers roughly 96% of workers, including many high earners. The program is a progressive system that takes more from and gives less to wealthier workers, concentrating benefits on lower-income beneficiaries who need the most help.
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Here’s how the Social Security program penalizes high earners.
The More You Earn, the Less of Your Income It Replaces
According to the Social Security Administration (SSA), Social Security replaces approximately 40% of the average worker’s income, but this percentage varies considerably according to salary. The program replaces roughly four dollars in five for the lowest earners, but less than one in three for the highest. Here’s the percentage of income that Social Security’s progressive benefits replace, depending on your earnings.
- Very low earners: 79%
- Medium earners: 43%
- Maximum earners: 28%
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Higher Earners Pay Far More In and Get Far Less Out
Not only do high earners receive a smaller percentage of their income in benefit payments, but they pay a disproportionate amount into the program over the course of their working lives. According to the Peterson Foundation, the SSA calculates benefits by adding the sum of each worker’s 35 highest-earning years, or if fewer, their total number of working years, and dividing it by the number of months under consideration to find the worker’s primary insurance amount (PIA), which is their initial monthly benefit.
The PIA is the sum of:
- 90% of the first $1,226 in monthly earnings
- 32% of average monthly earnings between $1,227 and $7,391
- 15% of average monthly earnings over $7,391
Each of these thresholds is known as a “bend point,” which diminishes payouts as income increases, despite high earners paying Social Security payroll taxes on up to $176,100 in income in 2025. The result, according to the Center on Budget and Policy Priorities, is that high earners recover about 25% of their taxable past average earnings while low earners get more than half.
The IRS Taxes More of Your Benefits as Your Income Rises
While SSI benefits aren’t taxable, retirement, disability and survivor payments can be, depending on income. Those earning more can wind up with only 15% of their benefits out of the out of the IRS’s reach.
- Single filers earning less than $25,000 and joint filers earning less than $32,000 do not have their benefits taxed.
- Single filers earning between $25,000 and $34,000, and joint filers earning $32,000 to $44,000, can have up to 50% of their benefits taxed.
- Single filers earning more than $34,000 and joint filers earning more than $44,000 can have up to 85% of their benefits taxed.
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This article originally appeared on GOBankingRates.com: 3 Social Security Penalties High Earners Shouldn’t Ignore
