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How Social Security is Financed

Social Security is financed through a dedicated payroll tax. Employers and employees each pay 6.2 percent of wages up to the taxable maximum of $118,500 (in 2016), while the self-employed pay 12.4 percent.

In 2014, $756 billion (85.5 percent) of total income for the Old-Age, Survivors and Disability Insurance (OASDI) program came from payroll taxes. The remainder was provided by interest earnings ($98.2 billion or 11 percent) and revenue from taxation of OASDI benefits ($29.6 billion or 3 percent).  About $500 million (0.1 percent) in reimbursements from the General Fund of the Treasury were transferred to the trust funds in 2014.

The payroll tax rates are set by law and apply to earnings up to the taxable maximum. This amount, called the earnings base, rises as average wages increase.  The following table reflects the portion of the tax rate that is dedicated to the OASI and the DI Trust Funds. 

                                    Share of the Tax Rate for Each Trust Fund

Year

OASI

DI

OASDI

2016 through 2018

2019 and later

5.015

5.30

1.185

0.90

6.20

6.20

SOURCE: The Bipartisan Budget Act of 2015 and the 2015 OASDI Trustees Report.

 

                                                                        Government Relations and Policy, March 2016



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