Jason Schultz

Office of the Chief Actuary

Social Security Administration

Contribution Structure

NASI 2017 Summer Academy for Interns

August 10, 2017
Payroll Tax Contribution Rates for 

the OASDI Program

 Employees in covered employment, and their 

employers, each pay 6.2 percent of the employee’s 

taxable earnings (12.4 percent is the combined rate)

 Self-employed individuals make contributions and pay 

the full 12.4 percent

 The contribution rate for the OASI program is 

generally 10.6 percent, while it is 1.8 percent for the DI 

program

– The Bipartisan Budget Act of 2015 provided a temporary tax 

rate reallocation from OASI to DI from 2016 through 2018

2
Contribution and Benefit Base

 This is an annual dollar amount above which earnings in 

employment covered under the OASDI program are 

neither taxable nor creditable for benefit computation 

purposes. Sometimes called “the cap”

 $127,200 for calendar year 2017. This means:

– $7,886.40 is the maximum Social Security tax an individual 

wage and salary worker will pay for 2017

– The maximum amount of earnings for 2017 that can be used in 

the average indexed monthly earnings (AIME) calculation (upon 

which the primary insurance amount is based) is $127,200

 This is an average-wage-indexed amount

3
Taxable Ratio

 The 1977 amendments to the Social Security Act raised 

the contribution and benefit base so that the ratio of total 

taxable payroll to total covered earnings was about 90 

percent

 Wage indexed thereafter

 This ratio has declined over time due to increasing 

earnings level disparities, and is now about 83 percent

4
Proposals Based on Contribution 

Structure

 Based on the Intermediate Assumptions of the 2017 

Trustees Report, the actuarial deficit could be eliminated 

by increasing the combined payroll tax rate by 2.93 

percent, to 15.33 percent

 BUT: the OASDI program has large and increasing annual 

deficits toward the end of the long-range period

 Proposals to increase tax revenue involve

– Raising payroll tax rates

– Raising the contribution and benefit base

– Other more sophisticated mechanisms (e.g., taxing premiums on 

employer-sponsored group health insurance)

5
Contribution and Benefit Base 

Proposals

 Could eliminate the “cap” completely, and either

– Count the additional earnings towards benefits ... 

– ... or not!

 Raise the “cap” so that it reaches a certain taxable 

ratio by a certain year

– For example, raise the contribution and benefit base until it 

covers 90% of all taxable earnings in 2023

– As a reference, a base of $250,000 covers about 90% of 

taxable earnings in 2017

6
Beyond The Cap

 Expand covered earnings to include employer and 

employee premiums for employer-sponsored group health 

insurance

 Expand covered earnings to include contributions to more

voluntary salary reduction plans (like Cafeteria 125 plans 

and Flexible Spending Accounts)

– Subject these contributions to the OASDI payroll tax, making the 

payroll tax treatment like 401(k) contributions

 Apply a 6.2 percent tax on investment income as defined 

in the Affordable Care Act, with unindexed thresholds as in 

the ACA ($200,000 for single filer, $250,000 for married 

filing jointly) 7
Questions?

 Visit www.ssa.gov/OACT for a wealth of information and 

actuarial resources

8