Imagine you’re holding your favorite donut right now. You close your eyes and take the first bite; warm, gooey dough. Then you bite again; nothing. One more time; you hit the dough again. A donut, like Social Security tax, has an upper and a lower rim with a whole lot of nothing in the middle. For donuts, this means you miss out on the delicious center. For Social Security tax, the wage ranges falling in-between the lower and upper rim, in the so-called “hole,” are not taxed.
However, with concern over Social Security’s longevity growing, the question of this hole becomes more prominent. In his attempt to close the hole, President Biden has increased the taxable wages for self-employed Americans from $137,700 to $142,800 for 2021, and the maximum taxable income will continue to adjust for inflation yearly. The plan also requires the reinstatement of Social Security taxes on those individuals making over $400,000. This portion makes up the rigid upper rim of our donut. As the lower rim increases, over time it will slowly, but surely, catch up to this unmoving upper rim, officially closing the gap for good.
While taxes are not nearly as easy to swallow as donuts, at least you know to expect yearly increases moving forward. Now go get yourself that donut, I know you want one.
This information is general, not specific, and is only meant to give perspectives on matters discussed which may change without notice. It is not intended to be tax or financial advice. Information has been obtained from various sources believed to be reliable, but interpretations and accuracy are not assured. Please contact us for any questions you may have or to revisit your planning strategies.