Erin Moriarity Explains How the Social Security Payroll Tax Works and What a Cut Could Mean

Many people know Social Security is funded in part by a payroll tax, but the basics of how that system operates are worth understanding. It is also important to know what could happen if lawmakers eliminate that tax cap and how the change might affect workers.

Although a bipartisan plan to remove the income cap has been described as a simple way to shore up Social Security, financial influencer Erin Moriarity says it would only solve part of the program’s funding problem. She also warned that high-earning self-employed workers could face a marginal tax rate increase of more than 50%.

She explained the issue on her channel, Erin Talks Money, and broke down the main points to watch.

What a Payroll Tax Cut Would Change

At its core, the issue is straightforward: a worker earning $90,000 a year would be taxed on the full amount for Social Security, while someone earning $350,000 would pay only on the first $184,500, which is the current cap for this tax. Moriarity also noted in her video that 65% of Democrats and 62% of Republicans support removing the cap.

How Removing the Cap Could Work

Moriarity said eliminating the cap is estimated to close between 40% and 60% of Social Security’s 75-year funding gap. But to fully cover the shortfall, taxes would need to rise immediately from 12.4% to about 16.8%, or roughly 4.25 percentage points more.

She also pointed out that tax rates and tax collections do not always move together in a neat or immediate way, since changes often unfold separately over time.

Who Would Feel the Impact Most

“If the income gap is eliminated, but we don’t subsequently adjust the formula on how benefits are paid, ultimately higher income earners would receive higher benefit payouts,” Moriarity said, adding that what Americans put into Social Security is eventually paid back in retirement.

She said that if more people pay in today, future taxpayers could face pressure to keep the program funded for generations. With birthrates falling and people living longer, fewer workers are supporting more beneficiaries for longer periods. That means higher earners, especially self-employed workers, could eventually need to cover more through higher marginal tax rates.

The Trade-Offs

According to Moriarity, removing the payroll tax cap would help narrow Social Security’s funding gap and ease an already existing shortfall. At the same time, she said it would raise marginal tax rates for high earners, including freelancers, contractors, and small-business owners who must pay taxes on all of their earnings.

In the end, she said lifting the payroll tax cap could reshape one of the program’s original goals: providing older Americans with financial security as they age.