Payroll taxes from U.S. workers and their employers provide most of the money for Social Security benefit programs.
In 2023, 12.4 percent of income up to $160,200 goes into the Social Security pot. Job holders and their employers split the contribution at 6.2 percent each; self-employed people pay both shares.
That money goes into two Social Security trust funds, called Old-Age and Survivors Insurance and Disability Insurance. The first pays out benefits to retirees and their family members and survivors; the second covers benefits for workers with disabilities and their family members and survivors.
About 80 cents of each dollar you pay in Social Security taxes goes to the old-age insurance fund, the rest to disability. In 2022, those taxes — called FICA for people with wage-earning jobs and SECA for the self-employed — brought in just over $1.1 trillion, accounting for 90.6 percent of Social Security's revenue, according to the 2023 annual report from Social Security's board of trustees.
The rest of the revenue comes from these sources:
- $66.4 billion from interest on money that the trust funds invested in federally backed guaranteed securities
- $48.6 billion from federal income taxes people paid on their Social Security benefits
- $183 million from reimbursements to the trust funds from the U.S. Treasury
Throughout its history, Social Security generally has taken in more money than it paid out, generating a reserve that totaled $2.83 trillion at the end of 2022. That trend of annual net gains is reversing as aging baby boomers swell the ranks of retirees.
If reserves are exhausted, the Social Security programs will continue to pay benefits out of their annual tax revenue. However, those payments will be lower, amounting to about 80 percent of what beneficiaries normally would be entitled to collect in 2034 and continuing to decline slightly in ensuing decades, according to current projections. Averting those cuts will require congressional action to shore up the system's finances.
Keep in mind
- Social Security is not a savings plan. What you pay into the system does not go into an account for your retirement. Workers in each generation finance Social Security payments for their retired elders and other beneficiaries. Down the road, their benefits will be paid for in turn by younger workers.
- FICA and SECA taxes also are set aside for Medicare. Payroll taxes amounting to 2.9 percent of earnings go into separate trust funds that subsidize the federal health-care program for older and disabled people.