How is Social Security Funded?
Social Security is
funded through payroll taxes (FICA, or Federal Insurance Contribution Act) on both the
employee and employer. Currently each pays 6.2 percent on all wages and salaries up to a
maximum of $72,600 in income. The payroll taxes we pay today finance the benefits for
today’s retirees. From the money we contribute, the government writes Social Security
checks and mails them to beneficiaries.
Any extra money
collected through payroll taxes goes into a Social Security Trust Fund. Until the 1990s,
the Social Security Trust Fund was relatively small. However, it has ballooned in size in
the past decade—and in fact has helped create the much celebrated "balanced
budget."
