Social Security, your wages and FICA

Your 35 years of earnings is what determines you social security benefit, not the taxes paid. Here is why.

✔️ Your benefits are paid for life and perhaps to a survivor. Your benefits don’t stop when you have received all you paid in FICA taxes – roughly after collecting benefits for 6 years.

✔️ The SSA averages your highest 35-years of earnings and then adjusts them to reflect the growth in wages using the AWI – average wage index. These adjusted wages are used to calculate your benefits. You paid taxes on the lower actual wages earned over 35 years but your taxes are not adjusted.

✔️ Millions of people receive SS benefits as dependents or spouses never having paid a penny in FICA taxes. There is no exact number, but estimates run between 5-8 million. At least 3 million are minor children who never worked.

✔️ Two workers may have the identical earnings history and paid identical FICA taxes. One could marry and receive 50% more in benefits for the new spouse. You only need to be married for one year before your wife can claim on your record. But if the spouse is the mother of your child, not even the one year applies.

✔️ Both a divorced spouse (after being married at least 10 years) and simultaneously a current spouse can collect benefits based on the workers earnings record.

✔️ Social Security provides annual COLA adjustments and those increased benefits have nothing to do with past earnings, but rather the benefits you are collecting.

✔️ The Social Security taxable wage base exists because the program was designed as a mix of insurance and social redistribution, not a fully uncapped payroll tax. Earnings above the cap are excluded from taxation in part so the system stays tied to expected benefits and keeps higher earners from paying far more in than the formula is meant to credit back.

Why it was built that way.

When Social Security began, Congress set a maximum amount of earnings subject to tax, and that basic structure has remained ever since. The cap reflects the idea that Social Security should replace a portion of earnings up to a point, rather than tax all wages without limit.