Social Security tax is part of the Federal Insurance Contributions Act (FICA) tax and helps fund benefits for retirees, disabled individuals, and surviving family members. The other part of FICA is the Medicare tax, which covers hospital insurance.
Both employees and employers contribute to Social Security. The total tax rate is 12.4% of earned income, with employers and employees splitting it at 6.2% each. If you’re self-employed, you pay the full amount.
The money goes into trust funds managed by the government and is distributed to eligible recipients based on set criteria.
Why is the Social Security Tax important?
Social Security plays a huge role in providing financial support to millions of Americans. Here’s why it matters:
- Reduces poverty. Helps retirees and people with disabilities avoid financial hardship.
- Supports fairness across generations. Today’s workers fund benefits for retirees, keeping the system running for future generations.
- Boosts economic stability. Benefits get spent in local economies, keeping money flowing.
- Encourages independence. Provides financial security so retirees and disabled individuals don’t have to rely solely on family or government assistance.
- Promotes social responsibility. A collective safety net ensures no one is left behind.
- Supports public health. Stable income reduces stress and financial struggles, leading to better health outcomes.
How does the Social Security Tax benefit employees?
If you’re paying into Social Security, you’re also building your own safety net. The money you contribute now funds benefits for others—but down the road, it’ll support you too. Here’s what you get:
- Retirement income. Once you reach eligibility age, you’ll receive Social Security payments based on your lifetime earnings.
- Disability insurance. If a serious disability prevents you from working, Social Security can provide financial assistance.
- Survivor benefits. If you pass away, your spouse or dependents may qualify for benefits, helping them stay financially stable.
- A built-in safety net. Helps protect you from unexpected financial challenges, like long-term illness or job loss.
- Long-term financial planning. Social Security ensures you’ll have a steady source of income in retirement, no matter what.
Paying Social Security tax also counts toward Medicare eligibility, giving you access to federal health insurance at 65 or earlier if you have a qualifying disability. That means lower healthcare costs when you need them most.