What happens if Social Security payroll taxes rise to 17%? The 2032 funding deadline could put thousands of dollars at stake for workers

A bigger Social Security tax could eventually show up in workers’ paychecks. One estimate says fixing the program’s long-term funding gap through payroll taxes alone could require the combined rate to rise from 12.4% to about 17%.

For a worker earning around $62,000 a year, that could mean several thousand dollars in additional taxes. Cato Institute economist Romina Boccia says the extra cost could be difficult for many households to manage. Her warning comes as Social Security moves closer to a major financial deadline.

The issue is not simply a higher deduction from a paycheck. Any tax increase would also affect employers, while self-employed workers would generally face the full combined rate themselves.

Why is Social Security running short of money?

Social Security has been collecting less in dedicated revenue than it needs to cover its costs. The program has relied on its trust fund reserves to make up the difference.

The pressure comes from a basic change in the program’s finances. Payroll taxes from current workers help finance benefits for people receiving Social Security now. As the population ages, the number of people drawing benefits has grown faster than the tax base supporting the program.

The latest trustees’ projections put the depletion of the retirement trust fund in 2032. That does not mean Social Security would stop sending checks. It means the money coming in would not be enough to cover the full benefits promised under current law.

The trustees estimate that, after the retirement fund is depleted, incoming revenue would cover about 78% of scheduled retirement and survivor benefits. The commonly cited 22% figure comes from that difference.

How much could a higher payroll tax cost?

Cato estimates that raising the combined payroll tax to roughly 17% could add about $2,600 to $3,000 a year for a median worker earning roughly $62,000.

That number is an estimate, not a bill sitting in Congress. The actual effect would vary with income and employment status. Most employees currently split the 12.4% Social Security tax with their employers, while self-employed workers generally pay both shares.

Boccia told CBS News that many workers may not have enough savings to comfortably absorb another few thousand dollars in annual costs. She pointed to the limited emergency savings held by many Americans as part of the reason she considers the increase financially difficult.

Does Social Security have to rely on a tax increase?

Raising payroll taxes is one possible way to close the gap, but it is not the only option lawmakers could consider. The Social Security Administration has modeled changes involving taxes, taxable earnings and benefit formulas. Different combinations would shift the financial burden in different ways. Some would ask workers and employers to contribute more. Others could affect future benefits or require additional federal revenue.

The latest projections do not decide which approach lawmakers should take. They show the size of the problem under current law. For workers, the unresolved question is how that cost will eventually be divided — through larger payroll deductions, changes to benefits, additional federal revenue, or some combination of them.

(This story draws on reporting and information from CBS News)