What is Social Security Tax?

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  • Originally Written By: Michelle Haskins
  • Revised By: Bott
  • Edited By: C. Wilborn
  • Last Modified Date: 21 September 2019
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The Social Security tax is a payroll deduction that was started by the United States Government in the 1930s. This tax is paid by most working people and their employers, and also includes self-employed individuals. Money collected through Social Security is used to help American citizens who are no longer able to work due to a disability, the death of a parent, or reaching retirement age. It also goes towards a system known as Medicare, which offers health benefits to qualifying individuals. The tax rate may change from year to year, depending on the need of beneficiaries, and the tax is deducted by the employer from an employee's paycheck each pay period.

Changing Rate

When individuals are employed, taxes are paid by both the employee and employer, with each party paying half of the tax, while self-employed citizens are required to pay the full amount. The actual rate amount is determined by the current government law regarding Social Security, and the rate may change according to how much monetary assistance is needed to continue funding the Social Security program. When the tax was originally created, the rate was 2%; that amount increased over time, and in the 1990s the rate was increased to 6.2%. This rate remained steady until 2011, when it was decreased to 4.2%.


It is possible that an employee may have too much money deducted from a paycheck towards Social Security. In this situation, the employee may file for a refund via his or her tax return. When an employer pays too much towards the fund, however, no refund can be made, so it is important for employers to pay the correct amount upfront.

Uses and Beneficiaries

The purpose of the Social Security tax is to ensure that every American citizen will have some type of income, even if he or she becomes disabled or too old to work, and to fund the Medicare system. All monies collected through the Social Security tax are placed into a fund where they distributed accordingly. Beneficiaries receive their share of monetary assistance in the form of a check, which can be mailed or deposited automatically into a bank account.

Several different groups of individuals benefit from this fund. Typically, qualifying conditions include situations in which someone becomes disabled, in which case he or she will receive a monthly income from the Social Security tax. If a parent with children under the age of 18 dies, each child will receive a monthly income known as "survivor benefits" until his or her 18th birthday. Retirees also benefit from the social security tax: after reaching retirement age, an individual should receive a monthly income from the Social Security tax.


In 1965, this government tax was increased to pay for an expansion known as Medicare. This new program was established to provide healthcare benefits to US citizens who are 65 years of age or older or meet other requirements before that age. To qualify for Medicare, a citizen must typically be 65 years old or older and a legal citizen or permanent resident of the US; however, it is possible to qualify before the age of 65. People with certain disabilities, most of whom already receive Social Security, or those with end-stage renal disease may become Medicare beneficiaries at a younger age.

Created From Necessity

Before the Great Depression, the working class in America found themselves with several financial difficulties; at that time, if a person was not able to work, he had no way of supporting himself or his family. This was true for the elderly, as well as those who were sick or injured. Government health insurance for the elderly did not exist at that time, and without income, most individuals would not be able to pay for medical care or even the daily expenses of living for themselves or their families. If for any reason a worker had not been able to save money on his own throughout his life, once he became too old to work, his income would end. This would all change in 1935, when President Franklin D. Roosevelt signed the Social Security Tax Act into law.


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Post 6

Thanks for all of this information. This post answered a lot of the questions I had regarding social security and whether or not I should hire a social security disability attorney for the issues I have been having. Thanks for the help!

Post 5

I am not a US citizen but I have been paying into the social security system since 1975. Will my benefits (including health benefits) be affected if I reach retirement age or even early retirement and I am not a us citizen? I am a permanent resident alien.

Post 4

Does anyone know what happens to a person's social security withholding tax after a death? My dad passed away just before his 57 birthday. He was an integral part of my mother's business and was a business owner himself. We are just starting to think about picking up the pieces; figuring out what happens next. I feel bad for my mother and I want to make sure he is going to be okay (I'm sure she will, but she is closing her business temporarily). I also need to help her wrap up his estate, and I don't know much about any of this type of stuff. His passing was completely unexpected. Any advice would be helpful.

Post 3

@ Highlighter- The issue of social security is a hot button issue right now, and many people share your sentiment. The federal social security tax is only sustainable in its current form until 2016, after that, like you said; the social security trust fund will be depleted in 2037. This does not mean your benefits will run out. If nothing is done, the fund will still pay out benefits at 76 cents on the dollar after 2037. At this point, the funds would begin to decrease or increase year by year depending on the number of people that pay into the fund versus those that make claims on the fund.

The sobering facts about social security are really meant to underline the importance of some type of reform. Reform has to be implemented before the fund starts to bring in less than it pays out to be most efficient.

Post 2

So does anyone know what happens when social security runs out in 2037? I am 28 and have been paying the social security tax for about 12 years. I recently received a social security contribution report in the mail, and it made me mad that I have been paying into something that will expire before I am 55 years old. If I live past retirement age, I would like to be able to feel secure knowing that social security will be there if I cannot save enough.

I have seen people's entire savings wiped out in this recession, but they at least have social security for a lifeline. What happens to the rest of us who will not be able to depend on that?

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