Social Security Bill Phases Out Payroll Tax Above Limit by 2030, Boosts Benefits, and Changes COLA Formula

The “Safeguarding American Families and Expanding Social Security Act of 2025” is a big one. It attempts to do two major things simultaneously: increase benefits for current and future retirees, and completely change how the program is funded by high-income earners.

The Tax Cut: Phasing Out the Cap

Right now, Social Security payroll tax (the 6.2% you pay, plus the 6.2% your employer pays) is only applied up to a certain income limit, called the contribution and benefit base (CBB). If you earn above that limit—for 2024, it was $168,600—you stop paying the tax on the excess income. This bill blows up that structure, but in a way you might not expect.

Instead of eliminating the cap and taxing all income, Section 2 does the opposite: it phases out the Social Security payroll tax above the CBB entirely. Starting in 2026, only 80% of earnings above the CBB will be taxed. This percentage drops by 20 points each year until 2030, when the applicable percentage hits 0 percent for income above the CBB. What does this mean in real life? If you’re a high earner, say a software VP or a specialized surgeon, you’ll stop paying Social Security tax on any income over the CBB by 2030. This is a significant tax reduction for the highest earners, but it also means the Social Security Trust Fund loses a key source of revenue that currently flows in from those who earn above the cap.

Bigger Checks: The Benefit Boost

Section 3 is where the good news for beneficiaries lives. It changes the formula used to calculate your Primary Insurance Amount (PIA)—the base amount of your benefit. For the lowest tier of lifetime earnings, the percentage factor used in the calculation jumps from 90% to 95%. This is an immediate benefit increase for nearly everyone.

Crucially, the bill also adds a new benefit tier based on those earnings that were previously untaxed above the CBB. It creates a “surplus earnings” tier and adds 5 percent of those surplus earnings into the benefit calculation. So, the highest earners will still see a small bump in their retirement checks, even though they won't be paying taxes on those high earnings after the phase-out is complete. For those already receiving benefits, the Commissioner must recalculate their benefits in January 2026 using an adjusted formula, guaranteeing that no current beneficiary will see their benefit amount decrease.

The COLA Switch: A New Index for Seniors

Section 4 mandates a change to how annual Cost-of-Living Adjustments (COLAs) are calculated. Instead of using the current Consumer Price Index (CPI-W), the Social Security Administration must switch to a new index: the Consumer Price Index for Elderly Consumers (CPI-E). The Bureau of Labor Statistics (BLS) is required to create and publish this new index, which is supposed to track the spending habits of people who have reached “early retirement age.”

This is a major change because seniors often spend more on healthcare and housing than the general population, categories that tend to inflate faster. If the new CPI-E accurately reflects those higher costs, it could result in larger annual COLA increases starting in 2027. However, the BLS has significant discretion in how they build this new index, and the actual impact on your annual benefit check will depend entirely on their methodology and whether the CPI-E tracks higher or lower than the existing index over time.