Social Security and Medicare are financed by taxes paid by you and your employer. When you work as a salaried employee, your employer withholds a percentage of your earnings (up to the maximum taxable amount), adds a matching amount as the employer’s contribution and pays the total to the Internal Revenue Service (IRS) as a payroll tax. It’s called FICA (Federal Insurance Contributions Act) on your check.
If you are self-employed, you pay all the tax (15.3 percent) as SECA (Self-Employment Contributions Act) to the IRS yourself. Although self-employed people pay double the Social Security taxes of a salaried person, half of their tax is deductible on their tax return as a business cost.
Where Does Your Money Go?
Few people really know exactly where their Social Security tax dollars are going. Payroll taxes are credited to the two Social Security trust funds: the Old Age and Survivors Insurance (OASI) and the Disability Insurance (DI) trust funds. Money not used to pay benefits and administrative costs is invested in U.S. government bonds. The government uses the money invested in savings bonds to pay for all the services and the projects it provides to U.S. citizens.
For the most part, out of every dollar you pay:
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70 cents goes to a trust fund that pays monthly benefits to retirees and their families and to widows, widowers and children of workers who have died.
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19 cents goes to a trust fund that pays for the health care of all Medicare beneficiaries.
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11 cents goes to a trust fund that pays benefits to people with disabilities and their families.
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Less than one cent goes to administering Social Security.
