On June 18, 2025, the U.S. Social Security Administration released the “2025 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds” (the "Trustees Report").1 The Trustees Report provides a comprehensive overview and forecast of the finances of the combined U.S. Social Security Old-Age and Survivors and Disability (OASDI) Trust Funds, which together form the source of funds to pay U.S. Social Security benefits.
WHY THIS MATTERS
The latest version of the Trustees Report places the date on which the combined OASDI Trust Funds will be depleted as 2034, which is one year sooner than projected in the 2024 Trustees Report2. Once the Trust Funds are depleted, the system will become effectively insolvent, and will only be able to pay approximately 81 percent of currently scheduled benefits3. This means that in the absence of legislative reform, current and future beneficiaries face the prospect of a 19-percent across-the-board benefit cut.
Background
The Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA) levy across-the-board payroll taxes on work or self-employment activity performed within the United States and, in certain cases, outside the United States.4 These payments presently apply at a rate of 6.2 percent for both employers and employees on up to $176,100 of annual earnings. These rates have been in effect and unchanged since the enactment and implementation of the Social Security Amendments of 1983.5
The Trust Funds have historically taken in more tax revenue than they have paid out. However, as the U.S. population’s life expectancy has increased and total fertility rates decreased, the demographic position of the workforce has changed, eroding the tax base and expanding payments. To illustrate, in 1964, Social Security covered about 4 workers for each eligible beneficiary, while by 2023, that number had fallen to 2.7.6 This means that for each beneficiary, there are approximately 2.7 workers paying into the system. Thus, the balance of the OASDI Trust Funds has decreased and, absent reform, will eventually be exhausted.
KPMG INSIGHTS
This accelerated date of insolvency presents a challenge for lawmakers who will need to strike a balance between benefits cuts and tax increases, both unpopular with voters. SSA’s Office of the Chief Actuary scores a variety of legislative proposals to measure their potential effects on the Trust Funds.7
Among the contemplated proposals to reform the system are: tax increases such as increasing FICA and SECA rates, raising or eliminating the statutory maximum amount to which FICA and SECA rates apply, or expansion of the Net Investment Income Tax (NIIT) that currently applies to high earners to wage or passthrough income; and a variety of benefits cuts, such as an increase in the statutory minimum retirement age, less generous cost-of-living increases, or moving from a system of wage indexing annual earnings to a price indexing system.
KPMG LLP (U.S.) is monitoring these proposals and others to determine how they might affect ultimate reform legislation.
.FOOTNOTES:
1 See "The 2025 OASDI Trustees Report" on the website of the Social Security Administration.
2 See "The 2024 OASDI Trustees Report" on the website of the Social Security Administration.
3 See "A Summary of the 2025 Annual Reports" on the website of the Social Security Administration.
4 See "Social Security tax consequences of working abroad" on the website of the Internal Revenue Service.
5 Social Security Amendments of 1983, Pub. L. No. 98-21, 97 Stat. 65 (1983).
6 See "Covered Workers and Beneficiaries — 2024 OASDI Trustees Report" on the website of the Social Security Administration.
7 See “Office of the Chief Actuary's Estimates of Proposals to Change the Social Security Program or the SSI Program” on the website of the Social Security Administration.
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Disclaimer
The above information is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.
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