Social Security tax funds retirement, disability, and survivor benefits

Social Security tax comes out of your paycheck because the federal government uses it to pay three things: retirement benefits for people over 62, disability benefits for workers who can no longer work, and survivor benefits for the families of workers who die. You pay it now so that you or your family can receive payments later. The money does not sit in an account with your name on it — instead, current workers' taxes pay current retirees, and when you retire, future workers' taxes will pay you.

The tax rate is 6.2 percent of your wages, and your employer matches that amount. If you are self-employed, you pay both sides: 12.4 percent total. The money goes into the Social Security Trust Fund, which the Social Security Administration uses to send out checks each month to roughly 67 million people.

Key Takeaways

  • Social Security tax funds three programs: retirement benefits starting at age 62, disability benefits for workers who cannot work, and survivor benefits for spouses and children of deceased workers.
  • The tax rate is 6.2 percent of your wages (your employer pays another 6.2 percent), and there is a wage cap — in 2024, you stop paying after earning $168,600.
  • The money you pay does not go into a personal account; instead, it pays current beneficiaries, and future workers will pay your benefits when you retire.
  • You must work and pay Social Security tax for at least 10 years to become may be able to access for retirement benefits, though disability and survivor benefits have different rules.

How the Social Security tax system works

Social Security operates on what is called a pay-as-you-go system. When you work, your employer withholds 6.2 percent of your gross pay and sends it to the federal government. Your employer also contributes 6.2 percent. Together, that 12.4 percent funds the program for that month.

The Social Security Administration collects these taxes and uses them to pay benefits to people who are already retired, disabled, or the surviving family members of workers who have died. The system has worked this way since 1935. There is no personal Social Security account holding your specific contributions — the taxes you pay this year go out as benefits this year.

There is a wage cap on Social Security tax. In 2024, you stop paying the tax after your earnings reach $168,600 for the year. High earners pay the same total amount as someone earning exactly $168,600. This cap changes each year based on inflation.

Who receives Social Security benefits and why

Social Security has three main benefit programs. Retirement benefits go to workers who reach age 62 and have paid into the system for at least 10 years. The longer you wait to claim (up to age 70), the larger your monthly check. Most people claim between ages 62 and 67.

Disability benefits go to workers under full retirement age who have a medical condition expected to last at least 12 months or result in death, and who have worked long enough to be insured. The work requirement is shorter than for retirement — it depends on your age when you become disabled. A 24-year-old needs only 1.5 years of work history; a 42-year-old needs about 10 years.

Survivor benefits go to the spouse, ex-spouse, and children of a worker who dies, regardless of the worker's age. A widow or widower can claim at age 60 (or 50 if disabled), and children can claim until age 19 (or 23 if in high school full-time). These benefits exist so that if you die, your family does not lose income when ready.

The difference between Social Security tax and income tax

Social Security tax and federal income tax are two separate deductions on your paycheck. Social Security tax is a flat 6.2 percent (or 12.4 percent if self-employed) with a wage cap. Income tax is progressive — the rate depends on your total income and filing status — and has no wage cap.

Social Security tax funds only the three benefit programs described above. Income tax funds the general operations of the federal government: military, roads, courts, agencies, and everything else. You cannot opt out of either one if you are employed or self-employed.

What happens to Social Security if you do not work long enough

You must have earned 40 credits to receive retirement or survivor benefits. A credit is based on your annual earnings; in 2024, you earn one credit for every $1,730 you make, up to four credits per year. This means you need roughly 10 years of work history to may have access to for retirement benefits.

If you do not reach 40 credits, you will not receive retirement benefits, but your family may still receive survivor benefits if you die. Disability benefits have a different credit requirement that depends on your age — younger workers need fewer credits.

If you have paid Social Security tax but do not have enough credits when you reach retirement age, you have a few options: continue working to earn more credits, claim a reduced benefit at a later age, or claim spousal or survivor benefits if you are may be able to access through a spouse or ex-spouse.

Why the Social Security tax rate is what it is

Congress set the current tax rate of 12.4 percent (6.2 percent employee, 6.2 percent employer) in 1983 as part of a major overhaul of the program. At that time, the rate was meant to keep the Trust Fund solvent for decades. The rate has not changed since then, though Congress has adjusted it temporarily in the past.

The Social Security Trust Fund is currently projected to run short of reserves around 2034, according to the program's trustees. At that point, incoming tax revenue will cover only about 80 percent of scheduled benefits unless Congress changes the law. Congress could raise the tax rate, raise the wage cap, lower benefits, raise the retirement age, or use some combination of these options. No change has been made yet.

Self-employed workers and Social Security tax

If you are self-employed, you pay both the employee and employer portions of Social Security tax: 12.4 percent total on net earnings. You report this on Schedule SE when you file your income tax return. You can deduct half of your self-employment tax as a business expense, which reduces your taxable income.

Self-employed workers pay the same total amount as an employee and employer combined, but the timing is different. Employees have tax withheld from each paycheck; self-employed workers usually pay quarterly estimated taxes or settle the full amount when they file their annual return.

Frequently Asked Questions

Can I get my Social Security taxes back if I move out of the country?

No. Social Security taxes are not refundable. However, you may still receive benefits if you move abroad, depending on your citizenship and the country where you live. Some countries have agreements with the United States that allow their citizens to receive U.S. Social Security benefits. Contact the Social Security Administration to learn whether your situation qualifies.

What if I paid Social Security tax but never worked long enough to may have access to?

If you have fewer than 40 credits, you will not receive retirement benefits based on your own work record. However, you may be able to claim spousal benefits (if married or formerly married for at least 10 years) or survivor benefits (if a family member who may have access to dies). You can also continue working to earn more credits if you are still employed.

Does Social Security tax go into a savings account with my name on it?

No. Social Security operates on a pay-as-you-go system, meaning the taxes you pay this year fund benefits for current retirees and beneficiaries. When you retire, future workers' taxes will pay your benefits. There is no individual account holding your contributions.

Why do I pay Social Security tax if I plan to retire early?

You pay it because it is required by law for all workers and employers. Even if you plan to retire early, you may still receive Social Security benefits at age 62 (at a reduced rate) or later. You also build credits toward disability and survivor benefits, which protect you and your family if you become disabled or die before retirement.

Can the government take my Social Security benefits to pay debts?

Social Security benefits are generally protected from creditors, but the government can offset benefits to collect unpaid federal taxes, student loans in default, or child support and alimony owed. State governments can also offset benefits for unpaid state income taxes or child support in some cases.