Your Taxes�-What They're Paying For And Where The Money Goes

Social Security Administration

Your Taxes—What They're Paying
For And Where The Money Goes

Publication Number 05-10010
August 2000
(February 2000 edition may be used)
ICN 451459


Introduction
Take a look at your pay stub—the part that shows how much is taken out for the various taxes and benefits each pay period. One of those deductions is for Social Security and Medicare taxes. On some pay stubs it's called FICA, which stands for “Federal Insurance Contributions Act,” the law that authorized payroll deductions for Social Security.

We thought you might like to know what your Social Security taxes pay for and where the money goes.

Who Pays Social Security Taxes?
You do, of course, but so do more than 150 million other people. In fact, about 96 percent of all American workers pay Social Security taxes. The tax rate is 7.65 percent of your gross wages (6.2 percent for Social Security and 1.45 percent for Medicare). In the year 2000, your employer withholds the full tax—7.65 percent—up to a $76,200 wage base. If you earn more than $76,200, your employer continues to withhold the Medicare portion of the Social Security tax, or 1.45 percent, on the rest of your earnings.

Did you know that your employer matches your tax payment dollar for dollar? The next time you look at your Social Security deduction, double it, and that's the amount you and your employer are paying into Social Security toward your future benefits.

(Self-employed people also pay Social Security taxes. Their rate equals the combined employee/employer tax.)

What Do Your Social
Security Taxes Pay For?
Today, you're working and paying Social Security taxes. Tomorrow may be a different story. Some people plan for their retirement, but many of us don't give enough thought to what would happen if we become disabled, or what would happen to our family if we died.

That's why it's important for you to know that your Social Security taxes are paying for a lot more than just retirement benefits. In fact, you could think of your Social Security taxes as a premium on a potentially valuable insurance plan. Here's what you and your employer are buying with your Social Security taxes:

  • retirement coverage—benefits paid every month to eligible retired workers as early as age 62;
  • disability coverage—benefits paid every month to eligible workers of all ages who have a severe disability;
  • family coverage—benefits paid every month to the spouses and children (including dependent adults who have been disabled since childhood) of eligible retired and disabled workers;
  • survivors coverage—benefits paid every month to the eligible widow/ widower and children of a deceased worker; and
  • Medicare benefits—help with hospital bills, as well as limited coverage of skilled nursing facility stays, hospice care and other medical services at age 65 or younger if you become disabled.

You can help guarantee that you're receiving the proper credit for your work and earnings by checking your pay stubs and W-2 forms. Make sure your Social Security number is correct and that your name is spelled properly. If there are mistakes, show them to your employer so they can be corrected.

Where Your Social
Security Taxes Go

Out of every dollar that workers and their employers pay in Social Security taxes:

  • 85 cents goes to a trust fund that pays for monthly benefits to retirees and their families and to widow, widowers and children of workers who have died; and
  • 15 cents goes to a trust fund that pays benefits to people with disabilities and their families.

Your Social Security taxes also pay for administering Social Security. The administrative costs are paid from the trust funds described above and are less than 1 cent of every Social Security tax dollar collected.

The entire amount of taxes you pay for Medicare (1.45 percent of your earnings) goes to a trust fund that pays for some of the costs of hospital and related care of all Medicare beneficiaries. Medicare is administered by the Health Care Financing Administration.

Social Security is one of the most popular and successful of all government programs and enjoys broad support from all sectors of our society. Most Americans recognize the need to continue to provide a basic level of financial support and health care to be elderly, to people with disabilities and to the survivors of workers who have died.

What's In It For Me?
We want to help you plan your financial future by providing estimates of the retirement, disability and survivors benefits you and your family could be eligible to receive now and in the future. If you are 25 and older and not already receiving Social Security benefits, we will send you a Social Security statement, You can expect to receive a new statement showing your updated earnings records and your potential benefits each year about three months before your birthday.

It is important that you check your statement each year because any missing or unreported wages could affect your eligibility for Social Security benefits or lower the amount of potential benefits. It's a good idea to keep your W-2 forms and other wage records so you can verify the information on your earnings and benefit statement, If you find a problem, contact your local Social Security office right away and show us proof of your actual wages so we can correct your record.

One way you can help avoid any problems is to make sue Social Security has your correct name on file, If your name has changed due to marriage, divorce or any other reason, contact Social Security so we can change our records and issue you a corrected Social security card.

What's In It For All Of Us?
In addition to your personal stake in Social Security, we think it's important to consider the positive impact the program has on our country as a whole. Think of the value of Social Security in terms of the benefits it pays to the family of a fellow worker who has died, to a relative who has cancer and can't work or to a neighbor who's retired after a lifetime of hard work.

Social Security represents a pact between generations—a financial and social commitment among people of all ages. It guarantees a monthly income to current recipients and ensures a base of financial support for future beneficiaries—workers like you. As such, Social Security is one of the most important and far-reaching investments that you and all Americans can make.

For More Information
You can get recorded information 24 hours a day, including weekends and holidays, by calling Social Security's toll-free number, 1-800-772-1213. You can speak to a service representative between the hours of 7 a.m. and 7 p.m. on business days. Our lines are busiest early in the week and early in the month, so, if your business can wait, it's best to call at other times. Whenever you call, have your Social Security number handy.

People who are deaf or hard of hearing may call our toll-free TTY number, 1-800-325-0778, between 7 a.m. and 7 p.m. on business days.

We treat all calls confidentially—whether they're made to our toll-free numbers or to one of our local offices. We also want to ensure that you receive accurate and courteous service. That is why we have a second Social Security representative monitor some incoming and outgoing telephone calls.

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Social Security Administration
SSA Publication No. 05-10010
August 2000
(February 2000 edition may be used)
ICN 451459

SSA Home