What happens to earnings above the maximum taxable income limit for Social Security taxes?

Earnings above the maximum taxable income limit for Social Security taxes are indeed exempt from Social Security tax. This maximum limit, which is adjusted periodically, sets a cap on the amount of earnings that are subject to the Social Security tax. Once an individual's earnings exceed this threshold during a calendar year, they no longer pay Social Security tax on any income above that limit.

This system is designed to fund the Social Security program while balancing the contributions of high earners with those of lower and middle-income workers, who may contribute a larger percentage of their overall income. The exemption of earnings above the maximum limit helps to keep the Social Security tax structure progressive and aims to ensure that the program remains sustainable.

The other choices suggest different scenarios that do not apply under the current Social Security tax framework. There are no higher rates or penalties imposed on earnings exceeding the limit, nor are those earnings taxed solely at the state level; they simply do not contribute further to Social Security taxation once the cap is reached.