A worker earning $176,100 this year pays Social Security tax on every cent of that income. A CEO earning $5 million pays the same flat dollar amount and then stops. The tax simply does not apply to wages above the cap, a quirk of the system that has persisted for decades and that, according to the program’s own trustees, is helping push the main trust fund toward insolvency.
The 2025 Trustees Report projects that the Old-Age and Survivors Insurance (OASI) trust fund will be depleted around 2033. After that, incoming payroll taxes would cover only about 79 percent of scheduled benefits, forcing an automatic cut of roughly 21 percent for some 70 million people who depend on those checks.
One proposal that keeps resurfacing on Capitol Hill targets that gap directly: the Medicare and Social Security Fair Share Act (S. 1174), introduced in the 118th Congress by Sen. Sheldon Whitehouse of Rhode Island and Rep. Brendan Boyle of Pennsylvania. The bill would reimpose the full 12.4 percent payroll tax on individual earnings above $400,000, leaving wages below that line untouched. Its sponsors say the change would close the majority of Social Security’s 75-year financing gap without reducing a single retiree’s benefit. S. 1174 has not been reintroduced in the 119th Congress as of June 2026, though the concept continues to circulate in congressional discussions around solvency.
How the “donut hole” works
Under current law, workers pay a 6.2 percent Social Security tax on wages up to an annual cap, which stands at $176,100 in 2025. Employers match that 6.2 percent, bringing the combined rate to 12.4 percent. Every dollar above the cap is exempt.
The Fair Share Act would preserve that structure for wages up to the cap and would not touch earnings between $176,100 and $400,000. Above $400,000, the full 12.4 percent tax would kick back in. The untaxed band in the middle is what policy analysts call the “donut hole.” It is the feature that allows sponsors to say, accurately, that no new tax hits income below $400,000. Workers already paying the tax on wages under the cap would see zero change.
The bill text does not specify whether the $400,000 threshold would be indexed to inflation or remain a fixed dollar amount. If it is not indexed, wage growth would gradually pull more earners above the line over time, effectively expanding the tax’s reach without any new legislation.
The Social Security Administration’s Office of the Chief Actuary has modeled this exact mechanism. Its catalog of scored payroll-tax provisions includes variants that apply the 12.4 percent OASDI tax on earnings above $400,000, with separate estimates depending on whether those additional earnings count toward future benefits. The Congressional Research Service, in a nonpartisan overview of options to raise or eliminate the taxable earnings base, confirmed that a donut-hole structure above $400,000 is among the designs Congress can deploy to shrink the long-range shortfall.
Who would actually pay more
Very few people, in relative terms. Fewer than about 3 percent of U.S. wage earners report annual compensation above $400,000, based on SSA wage statistics (the most recent complete data available covers tax year 2023). For those workers, the new tax would apply only to the slice of pay above the threshold.
Consider someone earning $500,000. Under the proposal, the additional 6.2 percent employee-side tax would apply to $100,000 of income, adding roughly $6,200 a year to their tax bill. Their employer would owe a matching $6,200. A surgeon earning $600,000 would face the additional employee-side tax on $200,000, or about $12,400 a year, with the employer paying the same. For someone earning exactly $400,000 or less, the bill changes nothing.
A Senate Budget Committee statement from the bill’s sponsors emphasizes “no taxes below $400k.” That framing is correct in the context of the new levy, but it can mislead readers into thinking all income below $400,000 is free of Social Security taxes. It is not. The existing payroll tax on wages up to $176,100 remains fully in place.
How much of the shortfall it would close
The answer depends on a critical design choice: whether earnings above $400,000 would count toward a worker’s future benefit calculation.
If they do, high earners would eventually receive larger retirement checks, partially offsetting the revenue gain. If they do not, the added tax functions as a pure transfer to the trust funds, closing more of the gap but breaking the traditional link between contributions and benefits.
The Chief Actuary’s catalog lists several scored variants of this approach. The specific solvency impact depends on assumptions about benefit crediting, behavioral responses, and economic projections, and the estimates span a range. Under the variant that applies the tax above $400,000 without crediting those earnings toward benefits, the scored provisions indicate the change would close a substantial share of the 75-year shortfall, though the precise fraction varies by model run and has not been updated for the 119th Congress. Crediting the earnings would still make a meaningful dent but a smaller one. The bill text available as of June 2026 does not specify which approach Congress intends, and no updated actuarial letter reflecting the latest economic assumptions has been published for the current session.
Policy analysts also flag a behavioral wildcard. If high earners shift compensation into stock options, deferred pay, or other forms not subject to payroll taxes, actual revenue could fall short of static projections. The actuarial models account for some degree of this response, but real-world tax planning over decades is inherently difficult to forecast. The bill also does not address investment income, which means capital gains, dividends, and other non-wage earnings would remain outside the Social Security tax base regardless of how high they are.
Where the bill stands in Congress
S. 1174 was filed during the 118th Congress (2023-2024) and was not reintroduced in the 119th Congress as of June 2026. On the House side, Rep. John Larson of Connecticut has championed the Social Security 2100 Act, a broader companion effort that would both expand benefits and raise revenue through higher payroll-tax thresholds. Several Senate Democrats have signaled support for debating some version of a higher cap.
Opposition comes primarily from Republicans and some business groups, who argue that sharply increasing marginal tax rates on a narrow band of earnings could distort hiring and compensation decisions and open new avenues for avoidance. Some critics also contend that breaking the link between contributions and benefits would undermine the social-insurance model that has sustained public support for the program since 1935.
No floor vote on any version of the donut-hole proposal has been scheduled in either chamber as of June 2026, and any final reform package is likely to blend multiple approaches. The CRS overview of solvency options outlines alternatives including gradually raising the existing cap, increasing the payroll tax rate across all earnings, modifying the benefit formula, and adjusting the annual cost-of-living increase. Each path distributes the burden differently across income groups and generations.
What this means if you are collecting Social Security right now
For current retirees, nothing changes immediately. Benefits will continue to be paid in full as long as the trust funds hold reserves, and payroll taxes will keep flowing in under existing rules. The 2033 projected depletion date is not a cliff where payments stop entirely. It is the point where the program can only pay roughly 79 cents of every dollar owed.
But the calendar matters. The closer Congress gets to that date without acting, the more abrupt any fix becomes. A gradual phase-in starting soon spreads the adjustment over years; a last-minute patch in 2032 or 2033 would force sharper trade-offs and leave less time for workers and employers to adapt.
Why the donut-hole debate keeps stalling despite the 2033 deadline
The Fair Share Act offers one answer to a question Congress has been deferring for more than two decades: who should bear the cost of keeping Social Security whole? Its sponsors are betting that concentrating the burden on the top few percent of earners is both politically viable and actuarially sufficient. Critics counter that the math only works under favorable assumptions and that a broader fix, one that touches benefits, retirement ages, or the tax rate itself, is unavoidable. Every year that passes without legislation narrows the menu of painless options and raises the stakes for the people who can least afford a surprise cut to the income they depend on.
