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Social Security: Your Taxes … What You're Paying For and Where Your Money Goes

Social Security Administration

Your Taxes...What They're Paying
For And Where The Money Goes

Publication Number 05-10010
January 1999
ICN 451459

Take a look at your pay stub—the part that shows how much is taken out for the various taxes and benefits each pay period. One of those deductions is for Social Security and Medicare taxes. On some pay stubs it's called FICA, which stands for "Federal Insurance Contributions Act," the law that authorized payroll deductions for Social Security.

We thought you might like to know what your Social Security taxes pay for and where the money goes. This leaflet explains that.

Who Pays Social Security Taxes?
You do, of course, but so do more than 140 million other people. In fact, about 95 percent of all American workers pay Social Security taxes. The tax rate is 7.65 percent of your gross wages (6.2 percent for Social Security and 1.45 percent for Medicare). In 1999, your employer withholds the full tax—7.65 percent—up to a $72,600 wage base. If you earn more than $72,600, your employer continues to withhold the Medicare portion of the Social Security tax, or 1.45 percent, on the rest of your earnings.

Did you know that your employer matches your tax payment dollar for dollar? The next time you look at your Social Security deduction, double it, and that's the amount you and your employer are paying into Social Security toward your future benefits.

(Self-employed people also pay Social Security taxes. Their rate equals the combined employee/employer tax.)

What Do Your Social Security Taxes Pay For?
Today, you're working and paying Social Security taxes. Tomorrow may be a different story. Some people plan for their retirement, but many of us don't give enough thought to what would happen if we become disabled, or what would happen to our family if we die.

That's why it's important for you to know that your Social Security taxes are paying for a lot more than just retirement benefits. In fact, you could think of your Social Security taxes as a premium on a potentially valuable insurance plan. Here's what you and your employer are buying with your Social Security taxes:

  • retirement coverage—benefits paid every month to eligible retired workers as early as age 62;
  • disability coverage—benefits paid every month to eligible workers of all ages who have a severe disability;
  • family coverage—benefits paid every month to the spouses and children (including dependent adults who have been disabled since childhood) of eligible retired and disabled workers;
  • survivors coverage—benefits paid every month to the eligible widow/ widower and children of a deceased worker; and
  • Medicare benefits—help with hospital bills, as well as limited coverage of skilled nursing facility stays, hospice care and other medical services at age 65 or if you become disabled.

You can help guarantee that you're receiving the proper credit for your work and earnings by checking your pay stubs and W-2 forms. Make sure your Social Security number is correct and that your name is spelled properly. If there are mistakes, show them to your employer so they can be corrected.

What's In It For Me?
You can find out how much you would get from Social Security by asking us for an estimate of your benefits. We'll send you a free statement that contains a record of your earnings and estimates of your retirement and disability benefits, as well as an estimate of what your family might be eligible for if you die.

We encourage you to request this statement at least once every three years to check your benefits and to make sure your earnings are properly recorded in our files. It's important that you do this because any missing or unreported wages could affect your eligibility for Social Security benefits or lower the amount of potential benefits. It's a good idea to keep your W-2 forms and other wage records so you can verify the information on your earnings and benefit statement. If you find a problem, contact your local Social Security office right away and show us proof of your actual wages so we can correct your record.

One way you can help avoid any problems is to make sure Social Security has your correct name on file. If your name has changed due to marriage, divorce or any other reason, contact Social Security so we can change our records and issue you a corrected Social Security card.

What's In It For All Of Us?
In addition to your personal stake in Social Security, we think it's important to consider the positive impact the program has on our country as a whole. Think of the value of Social Security in terms of the benefits it pays to the family of a fellow worker who has died, to a relative who has cancer and can't work or to a neighbor who's retired after a lifetime of hard work.

Social Security represents a pact between generations—a financial and social commitment among people of all ages. It guarantees a monthly income to current recipients and ensures a base of financial support for future beneficiaries—workers like you. As such, Social Security is one of the most important and far-reaching investments that you and all Americans can make.

Where Your Social Security Taxes Go
Out of every dollar that workers and their employers pay in Social Security taxes:

  • 86 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; and
  • 14 cents goes to a trust fund that pays benefits to people with disabilities and their families.

Your Social Security taxes also pay for administering Social Security. The administrative costs are paid from the trust funds described above and are less than one cent of every Social Security tax dollar collected.

The entire amount of taxes you pay for Medicare (1.45 percent of your earnings) goes to a trust fund that pays for some of the costs of hospital and related care of all Medicare beneficiaries. Medicare is administered by the Health Care Financing Administration.

Social Security is one of the most popular and successful of all government programs and enjoys broad support from all sectors of our society. Most Americans recognize the need to continue to provide a basic level of financial support and health care to the elderly, to people with disabilities and to the survivors of workers who have died.

Your Social Security Number
We use your Social Security number to record your earnings while you're working and to maintain your benefits once you're eligible for Social Security. In addition to these "official" uses, banks, insurance companies and many other businesses and government agencies use the Social Security number for recordkeeping purposes. You should know that giving it to them does not give them access to your Social Security records. The privacy of your records is guaranteed unless 1) disclosure to another government agency is required by law or 2) the information is needed to conduct Social Security or other governmental health or welfare programs.

The Social Security Administration is aware of concerns about the increasing uses of the Social Security number for identification and recordkeeping purposes. If a business or other enterprise asks for your Social Security number, you can refuse to give it to them. However, that may mean doing without the purchase or service for which your number was requested.

Also, your employer should not display your Social Security number on an identification badge or in any other public format. Our primary message: be careful with your Social Security number and protect its privacy.

Your Own Social Security Statement
You can get a statement of your earnings, as reported to Social Security, plus an estimate of the retirement, disability and survivors benefits you and your family may be eligible to receive. Call Social Security at 1-800-772-1213, 24 hours a day, seven days a week, and ask for a Personal Earnings and Benefit Estimate Statement request form. You'll receive your statement about four weeks after we receive your completed request form. The request form also is available on the Internet at, as are many Social Security publications.

For More Information
You can get recorded information 24 hours a day, including weekends and holidays, by calling Social Security's toll-free number, 1-800-772-1213. You can speak to a service representative between the hours of 7 a.m.. and 7 p.m. on business days. Our lines are busiest early in the week and early in the month, so, if your business can wait, it's best to call at other times. Whenever you call, have your Social Security number handy.

People who are deaf or hard of hearing may call our toll-free "TTY" number, 1-800-325-0778, between 7 a.m. and 7 p.m. on business days.

The Social Security Administration treats all calls confidentially—whether they're made to our toll-free numbers or to one of our local offices. We also want to ensure that you receive accurate and courteous service. That is why we have a second Social Security representative monitor some incoming and outgoing telephone calls.

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