Frustrated with Social Security Taxes? Why are they taken out of my paycheck?
Workers who earn (and their employers) must contribute to Social Security via payroll taxes to fund the program. When the program first started, certain employees and their employers were required to each contribute 1% of the employee’s first $3000 of earnings. Obviously, those amounts have risen over the decades. And, for clarity, only certain workers originally participated in Social Security, which has also changed over the decades so that now nearly everyone who works must pay Social Security payroll taxes.
How it works
Starting in 1937 and still today, Social Security payroll taxes paid by those now working are used by the federal government to pay benefits to those who are currently receiving them. Said another way, Social Security is a “pay as you go “program where income from those working (and their employer) is used to pay benefits to those receiving. Payroll taxes collected are not put into a personal account for the worker: rather they are used to meet current Social Security payment obligations. Any excess money collected is invested in special issue government bonds as reserves for future use.
Conclusion
So, the financing method enacted in 1935 and started in 1937 still applies, – those who work and earn (and their employers) must pay into the system to fund benefit payments to those who are now receiving – and that includes those workers who are already collecting their Social Security. FYI, there was a time when, if someone worked after starting their Social Security benefits, they lost all their benefits. Fortunately, that rule no longer exists, so those who are collecting Social Security benefits can now continue to get benefits if they work, but they must also still pay into the program from their work earnings to help pay benefits to Social Security recipients.
Need help with your questions on social security taxes, connect with our advisors at https://socialsecurityreport.org/about/social-security-advisory-service/. Email ssadvisor@amacfoundation.org