Social Security is funded through payroll taxes known as Federal Insurance Contributions Act (FICA) taxes. Workers and their employers contribute a portion of their earnings to the Social Security trust fund. The funds collected are used to pay benefits to current retirees, survivors, and individuals with disabilities.
According to information shared on the SSA web portal, employers and employees each pay 6.2% of wages. Self-employed workers pay 12.4%.
It is important to mention that Social Security benefits are limited to a maximum monthly benefit amount based on earnings history. To prevent workers from paying more in taxes than they can receive in benefits, the SSA sets a limit on the amount of earned income subject to tax. This is called the tax limit.
For 2023, the taxable maximum is $160,200, limiting the employee’s maximum annual contribution to $9,932.40. For next year, the limit will be increased to $168,600, limiting the employee’s maximum annual Social Security contribution to $10,453.20.
What is Old-Age and Survivors Insurance?
Old-Age and Survivors Insurance (OASI) is a social insurance program in the United States that provides financial protection to retired and surviving workers and their dependents. It is commonly known as Social Security. In 2022, total income, including interest, from the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds amounted to $1.222 trillion, according to the SSA.
Of this, $1.107 trillion came from contributions net of payroll taxes, $49 billion from earnings taxes, and $66 billion from interest.
