by Daniel Brouse
June 20, 2025
It’s that time of year again when misinformation about Social Security starts circulating widely. Many people are posting false or misleading claims—especially regarding wealth inequality and the program’s long-term sustainability. The truth is that higher-income individuals typically receive less in benefits relative to what they pay into the system, while lower- and middle-income earners often receive significantly more in return.
All wage earners in the United States contribute to Social Security through a payroll tax of 6.2% on their wages, which is matched by their employer for a total contribution of 12.4%. This tax applies only to income up to a wage cap ($168,600 in 2025), meaning everyone pays the same rate on the same portion of income, regardless of whether they earn $30,000 or $160,000 a year. Because of this cap, the system is considered regressive on the contribution side. However, the way benefits are calculated makes the system progressive.
Social Security benefits are based on a worker’s highest 35 years of earnings, adjusted for inflation. The benefit formula is designed to replace a higher percentage of income for low- and middle-income earners than for high earners. For example, in 2025, the formula replaces 90% of the first $1,174 of a worker’s average indexed monthly earnings, 32% of the next portion up to $7,078, and only 15% of earnings above that. This means that while higher earners receive larger dollar benefits, lower and middle-income workers receive a greater return relative to what they paid in.
In addition to wage earners and their employers, self-employed individuals also contribute to Social Security—but they are responsible for both the employee and employer portions of the tax. This means self-employed workers pay the full 12.4% Social Security tax on their net earnings, up to the same annual wage cap. While this results in a higher out-of-pocket contribution, self-employed individuals earn Social Security credits and qualify for the same retirement, disability, and survivor benefits as traditional employees. Their benefits are calculated using the same progressive formula, based on their reported income over their working years.
Most middle-income workers end up receiving more in lifetime benefits than they paid into the system. This is due to a combination of factors: increased life expectancy means they collect benefits for more years; the benefit formula favors them proportionally; and many also receive additional support through spousal or survivor benefits. For example, someone who earned $60,000 annually for 40 years would have paid about $148,800 in Social Security taxes (excluding employer contributions). But if they retire at 67 and live to 87, they could receive well over $500,000 in total benefits. When factoring in employer contributions and longevity, most middle-income earners recover far more than their personal contributions, making Social Security a vital and redistributive component of retirement security.
Another common false narrative is the claim that undocumented immigrants unfairly receive Social Security benefits without contributing to the system. In reality, the opposite is often true. Many undocumented workers—often using false or borrowed Social Security numbers—pay billions of dollars into the system through payroll taxes. Their employers, whether knowingly or unknowingly, also pay the employer share of the tax. However, because these individuals do not have legal status and lack a valid Social Security number, they are ineligible to claim benefits, even after years or decades of contributions. According to estimates from the Social Security Administration, undocumented immigrants contribute approximately $12 billion annually to the system while receiving little or nothing in return. These unclaimed funds help bolster the Social Security Trust Fund and indirectly support the benefits of lawful residents and retirees.
While Social Security was originally designed as a supplemental retirement benefit based on a worker’s lifetime contributions, in practice it also functions as a progressive income redistribution system. This structure has helped lift millions of elderly Americans out of poverty. Still, for Social Security to remain financially sustainable, adjustments will be necessary. Gradually raising the retirement age to reflect longer life expectancy is one option, but it must be balanced against the reality that many Americans are facing rising rates of preventable diseases, often linked to obesity and poor lifestyle choices, which can reduce healthy working years. Policymakers must navigate these challenges carefully to preserve the system for future generations.