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How Social Security Is Funded

More than 90 percent of U.S. workers pay into the system, supporting today’s retirees and earning their future benefits

5-minute read

Part of Series: Funding and Future

Phil Pruitt,

AARP

Expert reviewed by

Joel Eskovitz

Published October 09, 2026

Phil Pruitt is an AARP writer and editor focusing on Social Security. He is a former editor at Scripps News and Yahoo News and was on the start-up staff at USA Today, where he held numerous editing positions.

Joel Eskovitz, JD, is a senior director of Social Security and savings at the AARP Public Policy Institute, where he oversees retirement security and Social Security policy.

Key takeaways

Most Social Security funding comes from a 12.4 percent payroll tax on work income, typically split between workers and employers.
Payroll taxes are deposited into two trust funds, OASI and DI, which hold special Treasury securities used to pay benefits and administrative costs.
Smaller revenue streams include interest earned on trust fund securities and federal income taxes paid on some Social Security benefits.

Social Security is primarily funded by payroll taxes collected from most U.S. workers — an estimated 185 million in 2025, according to the Social Security Administration (SSA). If you are working, you are almost certainly helping support Social Security, and at the same time earning your future benefit.

Here’s a detailed look at Social Security’s funding and how it is managed.

How the payroll tax works

About 93 percent of workers pay Social Security payroll taxes. The tax rate is 12.4 percent. If you are an employee, you pay FICA (Federal Insurance Contributions Act) taxes, and you and your employer split the tax at 6.2 percent each. If you work for yourself, you are responsible for the entire 12.4 percent in SECA (Self-Employment Contributions Act) taxes.

The law requires employers to withhold FICA taxes from employee earnings. SECA taxes are based on net earnings and paid when you file your federal taxes.

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But there’s a cap on how much of your income is taxed. It’s officially called the “contribution and benefit base” but is more commonly known as the “taxable maximum.” The cap is adjusted annually based on national wage trends; in 2026, it’s $184,500. Work income above the cap is not taxed to support Social Security, nor are most other forms of income, such as investment returns.

Where your money goes

Your Social Security contributions go into two trust funds labeled Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI). The first covers payments to retirees and their family members and survivors; the second covers benefits for workers with disabilities and their family members and survivors. In 2026, about 85 cents of each dollar you pay in Social Security taxes goes to the OASI fund, the rest to the DI fund, according to the SSA.

That money is invested in special Treasury securities that are available only to the trust funds. These securities are guaranteed for principal and interest by the federal government and are not subject to the ups and downs of financial markets. They are redeemed to pay Social Security benefits and cover the SSA’s administrative costs.

Money not needed for those purposes each year remains in the trust funds, building up a surplus that stood at $2.56 trillion at the end of 2025, according to the SSA, but has been dwindling in recent years. (More on that in a bit.)

Other funding sources

FICA and SECA taxes provide most of Social Security’s revenue — more than 91 percent of it in 2025, in fact. But the system has a two other regular revenue sources:

Interest on the trust funds’ investment in special securities. This amounted to $68.9 billion in 2025, or about 4.8 percent of total revenue. As the trust fund surplus dwindles, so, too, will Social Security’s interest income.
Federal income taxes paid on benefits. The IRS taxes a portion of Social Security payments for some recipients, based on their overall income. These taxes added $57.8 billion to the program’s coffers last year, or 4 percent of the total.

It’s not a personal savings account

You earn your Social Security benefits by paying into the system throughout your working life, but the money doesn’t go into an account in your name that you withdraw from when you retire.

Social Security is essentially a pay-as-you-go system. Money coming in from today’s workers goes out as payments to retirees and people with disabilities (and, in some cases, members of their families). When today’s workers retire, their benefits will be covered by those working and paying into Social Security at that time.

One way to think of it is like insurance — something the government recognized when it formally named Social Security the Old-Age, Survivors and Disability Insurance program (or OASDI, as it might appear on your pay stub). Like premiums that go into a pool of money to pay policyholders when they make an insurance claim, OASDI taxes go into the trust funds to pay today’s beneficiaries, and workers draw payments from the pool when they retire or suffer a disability.

It’s not part of the regular federal budget

With their dedicated streams of revenue, the trust funds are distinct from the federal government’s general fund. Congress does not annually allocate money for Social Security payments in the annual federal budget, and benefit payments do not count toward the budget deficit.

Social Security does indirectly help fund other federal activities. In the same way that it borrows from investors who buy Treasury bonds, the government borrows from the Social Security trust funds, using the surplus invested in special securities to support other programs. The U.S. Treasury guarantees repayment, with interest, when Social Security redeems the securities, and it has never defaulted.

Why the trust fund surplus is dwindling

From the mid-1980s through 2020, Social Security’s total annual revenue exceeded what it paid out in benefits, generating that large trust fund surplus. But that trend has reversed in recent years amid demographic and economic changes. Notably, the number of retirees collecting benefits is growing faster than the number of workers paying for them, and growing income inequality means a lower percentage of total U.S. wages are being taxed for Social Security.

The 2026 annual report from Social Security’s trustees projects that the trust fund surplus will be depleted by 2034. That does not mean Social Security is going “bankrupt” or “broke,” as the situation is sometimes described. The system would continue to collect payroll taxes and use them to pay benefits.

However, without the trust fund cushion, Social Security would only be able to pay about 83 percent of scheduled benefits. To avoid that outcome, Congress must take steps to shore up Social Security’s finances — for example, by raising more revenue, reducing spending on benefits or a combination of the two.

The key takeaways were created with the assistance of generative AI. An AARP editor reviewed and refined the content for accuracy and clarity.

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