Social Security is paid for mainly by payroll taxes on people who are working right now. Those taxes cover roughly 90 percent of the program’s income. The rest comes from two smaller sources: interest earned on the trust funds’ Treasury holdings, and federal income taxes that higher-earning retirees pay on a portion of their own benefits. Together, those three streams brought in over $1.5 trillion in the most recent projections.
Payroll Taxes Do Most of the Work
The Federal Insurance Contributions Act, or FICA, sets the payroll tax that funds Social Security. Employees pay 6.2 percent of their wages, and employers pay a matching 6.2 percent, for a combined 12.4 percent going to Old-Age, Survivors, and Disability Insurance.1Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax2Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax It comes out of your paycheck automatically and is sent to the IRS throughout the year.
Not every dollar of wages is taxed. Social Security has an annual wage cap, and earnings above it are not subject to the 6.2 percent tax. For 2026, the cap is $184,500. Someone earning exactly that amount would contribute $11,439, and their employer would match it dollar for dollar.3Social Security Administration. Contribution and Benefit Base The cap rises most years, tied to changes in average national wages.
If you work for yourself, you pay both halves. The Self-Employment Contributions Act sets the combined rate at 12.4 percent of your net self-employment earnings, up to that same $184,500 cap.4Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax3Social Security Administration. Contribution and Benefit Base To offset paying both shares, the tax code lets you deduct half of your self-employment tax when figuring adjusted gross income, mirroring the deduction employers get for their share.5Office of the Law Revision Counsel. 26 USC 164 – Taxes
Medicare Rides Alongside but Is Separate
FICA also funds Medicare, but that money flows to a different trust fund and follows different rules. Employees and employers each pay 1.45 percent for Medicare on all wages with no cap, and single filers earning more than $200,000 (or $250,000 for married couples filing jointly) owe an additional 0.9 percent surtax on wages above that threshold.6Internal Revenue Service. Questions and Answers for the Additional Medicare Tax None of that pays for Social Security itself.
Interest on the Trust Fund Reserves
Payroll tax money that isn’t immediately needed for benefit checks doesn’t sit idle. It flows into two accounts, the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. Federal law requires any surplus to be invested in special-issue U.S. Treasury securities.7Social Security Administration. Trust Fund FAQs These securities are created only for the trust funds, are backed by the full faith and credit of the United States, and can be redeemed at face value whenever cash is needed to pay benefits.8Social Security Administration. Social Security Trust Fund Investment
The interest rate on those bonds is tied to the average market yield on federal debt with at least four years remaining before maturity, rounded to the nearest eighth of a percent.9Social Security Administration. Interest Rate Formula In recent years, interest earned this way has accounted for about 4 to 5 percent of the program’s total revenue.
Income Taxes on Retirees’ Benefits
The smallest revenue stream, around 5 percent of total program income, comes from federal income taxes that higher-earning retirees pay on their own Social Security checks. Whether any of your benefits are taxable depends on your “combined income,” which is your adjusted gross income plus any tax-exempt interest plus half of your annual Social Security benefits.
For single filers, the rules work this way:10Office of the Law Revision Counsel. 26 U.S. Code 86 – Social Security and Tier 1 Railroad Retirement Benefits
- Combined income of $25,000 to $34,000: up to 50 percent of benefits may be taxable.
- Combined income above $34,000: up to 85 percent may be taxable.
For married couples filing jointly, the thresholds are $32,000 and $44,000.10Office of the Law Revision Counsel. 26 U.S. Code 86 – Social Security and Tier 1 Railroad Retirement Benefits These dollar amounts have never been adjusted for inflation, so more retirees cross them each year as wages and account balances grow.
Where that tax money lands depends on which tier generated it. Revenue from the original 50-percent tier, created by 1983 legislation, goes into the Social Security trust funds. Revenue from the 85-percent tier, added in 1993, goes to Medicare’s Hospital Insurance Trust Fund.11Social Security Administration. Research Note 12 – Taxation of Social Security Benefits So a meaningful portion of the money raised by taxing benefits supports Medicare rather than Social Security.
Workers Who Don’t Pay In
A few categories of workers are partially or fully exempt from Social Security taxes, and in exchange they don’t earn benefits based on that work.
- Some state and local government employees. Coverage depends on whether the state has a Section 218 Agreement with the SSA. Public-sector workers in positions covered by a qualifying public retirement system may be exempt if their employer never opted in. Since July 1991, state and local workers who lack both a Section 218 Agreement and a qualifying retirement plan must pay into Social Security.12Social Security Administration. Section 218 Agreements13Internal Revenue Service. State and Local Government Employees Social Security and Medicare Coverage
- Members of certain religious groups. If you belong to a recognized sect that has existed continuously since December 31, 1950, and whose established teachings oppose accepting insurance benefits, you can apply for an exemption using IRS Form 4029. It requires waiving all rights to Social Security and Medicare benefits for yourself, your spouse, and your children.
- Students employed by their own school. Wages from a job at the same college or university where you’re enrolled at least half-time are generally exempt from FICA. The exemption typically doesn’t apply over the summer if you aren’t maintaining student status.
These carve-outs shrink the tax base slightly but don’t materially affect overall revenue.
What Happens After 2033
The mix of revenue holds up for now, but the arithmetic gets tighter. According to the 2025 Trustees Report, the OASI Trust Fund can cover 100 percent of scheduled retirement and survivor benefits through 2033. After that, its reserves would be exhausted, and incoming payroll taxes alone would cover about 77 percent of promised benefits. The Disability Insurance Trust Fund is projected to stay solvent through at least 2099. Considered together, the combined OASI and DI funds are projected to last until 2034, at which point roughly 81 percent of combined benefits could still be paid from ongoing tax income.14Social Security Administration. A Summary of the 2025 Annual Reports
If Congress does nothing, benefits don’t vanish. Payroll taxes keep coming in and would still fund roughly four dollars out of every five owed. The underlying pressure is demographic: fewer workers are supporting more retirees as the Baby Boom ages and birth rates stay low. Proposals to close the gap include raising or eliminating the wage cap, gradually increasing the retirement age, and adjusting the benefit formula for higher earners. The longer any change waits, the sharper it will need to be.