Do Rich People Get Social Security Benefits?

Social Security is a national social insurance program for millions of Americans. It offers a range of benefits, including retirement income, disability support, and survivor benefits for families. The program’s design aims to offer financial security, reflecting contributions made throughout a worker’s career.

Social Security Eligibility and Contributions

Social Security operates on a system of earned credits, with eligibility tied to payroll tax contributions. Individuals earn credits by working in jobs covered by Social Security and paying Federal Insurance Contributions Act (FICA) taxes. In 2024, one credit is earned for every $1,730 in covered earnings, and individuals can earn a maximum of four credits per year. To qualify for retirement benefits, most people need to accumulate 40 credits, which typically translates to 10 years of work.

FICA taxes, which fund Social Security and Medicare, are withheld from nearly all earned income. For 2024, the Social Security portion of FICA tax is 6.2% for both the employee and the employer, applied to earnings up to a certain annual limit. This limit, known as the Social Security wage base, is $168,600 in 2024, meaning earnings above this amount are not subject to Social Security tax. There is no similar cap for the Medicare portion of FICA tax, which is 1.45% for both employees and employers on all earned income. Regardless of wealth, individuals with earned income contribute to Social Security and earn credits up to the wage base.

Calculating Social Security Benefits for High Earners

Social Security benefits are calculated based on a worker’s Average Indexed Monthly Earnings (AIME), which considers the 35 highest-earning years of their career. These past earnings are “indexed” to reflect changes in the national average wage level over time, maintaining the purchasing power of earlier earnings.

The Primary Insurance Amount (PIA), which is the benefit a person receives at their full retirement age, is determined by applying a progressive formula to the AIME. This formula uses “bend points” to ensure that lower earners receive a higher percentage of their pre-retirement earnings back compared to higher earners. For 2024, the formula applies 90% to the first $1,174 of AIME, 32% to the AIME between $1,174 and $7,078, and 15% to any AIME above $7,078. This progressive structure means that while high earners receive a greater absolute dollar amount in benefits, the proportion of their career earnings replaced by Social Security is lower than for those with modest incomes.

Individuals who consistently earn at or above the Social Security maximum taxable earnings limit for 35 years will receive the maximum possible benefit at their full retirement age. For someone reaching full retirement age in 2024, the maximum monthly Social Security benefit is $3,822. This maximum amount is significantly higher than the average benefit, reflecting a lifetime of maximum contributions.

Taxation of Social Security Benefits

Social Security benefits can be subject to federal income tax for individuals with higher overall incomes. The Internal Revenue Service (IRS) determines the taxable portion of benefits based on “provisional income,” also known as “combined income.” This provisional income is calculated by adding a taxpayer’s Adjusted Gross Income (AGI), any tax-exempt interest, and one-half of their Social Security benefits.

There are specific provisional income thresholds that dictate the percentage of Social Security benefits subject to taxation. For single filers, if provisional income is between $25,000 and $34,000, up to 50% of Social Security benefits may be taxable. If a single filer’s provisional income exceeds $34,000, up to 85% of their benefits may be subject to federal income tax. For married couples filing jointly, these thresholds are higher: up to 50% of benefits are taxable if provisional income is between $32,000 and $44,000, and up to 85% is taxable if provisional income exceeds $44,000. Most higher-income individuals will find that 85% of their Social Security benefits are included in their taxable income due to these thresholds.

Medicare Premiums for High-Income Individuals

Medicare, a federal health insurance program, is associated with Social Security, as premiums for certain parts are often deducted from benefit payments. High-income individuals pay higher Medicare Part B (medical insurance) and Part D (prescription drug coverage) premiums through a mechanism called the Income-Related Monthly Adjustment Amount (IRMAA). IRMAA is an additional surcharge applied to these premiums when an individual’s Modified Adjusted Gross Income (MAGI) surpasses specific income thresholds.

The MAGI used to determine IRMAA is typically based on tax returns from two years prior; for example, 2024 IRMAA is based on 2022 income. These income thresholds are tiered, meaning premiums increase progressively as income rises, with different brackets for single filers and married couples filing jointly. For 2024, IRMAA surcharges begin for single individuals with MAGI above $103,000 and for married couples filing jointly with MAGI above $206,000. This system ensures that higher earners contribute more to the Medicare program, reflecting their greater financial capacity.