What Are Income Taxes Used For: Social Security, Medicare, Defense

Federal income taxes pay for the services and obligations of the U.S. government, and what income taxes are used for breaks down into a handful of large categories: Social Security, Medicare and other health programs, national defense, veterans’ benefits, interest on the national debt, safety-net programs, infrastructure and scientific research, and the day-to-day operations of federal agencies and courts. Individual income taxes are the government’s single largest revenue source, funding roughly 52 percent of everything collected so far this fiscal year.¹ Total federal spending is projected at $7.4 trillion in fiscal year 2026, and the five biggest categories each consume between 14 and 22 percent of that total.²

Social Security

Social Security is the largest single item in the federal budget, consuming about 22 percent of total spending, an estimated $1.665 trillion in fiscal year 2026.³ Most of that program is paid for by a dedicated payroll tax rather than income tax, but general income tax revenue supplements it to fund Supplemental Security Income, a separate program that provides cash payments to elderly or disabled people with very limited income and resources.

Medicare, Medicaid, and Other Health Programs

Medicare is the second-largest spending category at about 16 percent of the budget, with net outlays projected to reach $1.1 trillion in 2026, an 8 percent increase over the prior year.⁴ Like Social Security, Medicare is primarily payroll-tax-funded.

Other federal health spending, primarily Medicaid and the Children’s Health Insurance Program, accounts for another 14 percent of the budget and comes directly from general income tax revenue rather than a dedicated tax. Medicaid operates jointly with the states, with the federal government covering at least 50 percent of costs in every state and a higher share in states with lower average incomes. When Medicare and other health outlays are counted together, health programs represent roughly 30 percent of all federal spending.²

National Defense

National defense accounts for about 14 percent of total federal spending. For fiscal year 2026, Congress appropriated roughly $838.7 billion in base discretionary defense funding.⁵ That money covers the salaries of about 1.3 million active-duty service members, the procurement of equipment, the maintenance of military installations worldwide, research into advanced technologies, and international security assistance programs that provide training and equipment to foreign allies.

Veterans’ Benefits

The Department of Veterans Affairs operates on a separate budget from the Pentagon. Its fiscal year 2026 request totals $441.3 billion, a 10 percent increase over the prior year, and covers medical care, disability compensation, education benefits, and housing assistance for veterans.⁶

Interest on the National Debt

The government consistently spends more than it collects. It borrows the difference by issuing Treasury bonds and notes, and interest payments go to whoever holds that debt. Net interest is projected to reach $1.0 trillion in 2026, about 14 percent of total spending and 3.3 percent of GDP.⁴ Federal debt held by the public currently stands at about 101 percent of GDP.⁷

Interest is different from every other category on this list. It funds no service and no benefit. It is purely the cost of past borrowing, and the CBO projects it will keep climbing to 4.6 percent of GDP by 2036, meaning a growing share of each tax dollar will go toward debt servicing rather than programs.⁴ Skipping these payments would constitute a default on U.S. government obligations.

Safety Net and Income Support

A portion of income tax revenue funds programs designed to reduce poverty. The Earned Income Tax Credit is one of the largest. It provides a refundable credit to lower- and moderate-income workers, with the maximum reaching $8,231 for a family with three or more qualifying children in tax year 2026.⁸ Because the credit is refundable, eligible filers can receive a direct payment even if they owe no income tax.⁹

The Supplemental Nutrition Assistance Program helps tens of millions of households afford groceries each month, and federal housing assistance through vouchers and subsidies helps lower-income families cover rent. These programs run through the Department of Agriculture and the Department of Housing and Urban Development and draw from general tax revenue.

Infrastructure, Research, and Education

Federal tax dollars fund the construction and repair of interstate highways, bridges, and public transit. The Federal Aviation Administration uses them to manage air traffic control for thousands of daily commercial flights. Public education receives federal support through grants and student financial aid, though the majority of K-12 funding comes from state and local governments.

Scientific research is funded through NASA, the National Science Foundation, and the National Institutes of Health, which receives billions each year to study diseases and develop treatments. Much of this work happens through partnerships with universities and private laboratories.

Running the Government Itself

Operating the three branches of government has its own cost. The federal judiciary requested approximately $10.3 billion in appropriations for fiscal year 2026 to run the court system, including the salaries of federal judges, public defenders, and court staff.¹⁰ Congress and the executive branch carry their own operational costs.

The Department of Justice funds federal law enforcement, including the FBI, which investigates crimes ranging from financial fraud to terrorism, and federal prosecutors handle those cases through U.S. Attorney offices across the country. Public land management falls into the same category: the National Park Service and the Bureau of Land Management receive funding to maintain national parks, forests, and historic sites.

What Income Taxes Don’t Fund

A common assumption is that income taxes pay for Social Security and Medicare. They don’t, for the most part. Those programs are financed mainly through a separate payroll tax that comes out of your paycheck under the FICA line, projected to equal about 5.7 percent of GDP. Income tax revenue supplements those programs at the margins, particularly for Supplemental Security Income and portions of Medicare, but the core benefits are paid from their own dedicated funds. Corporate income taxes also contribute to general revenue, projected at roughly $404 billion in 2026, a fraction of what individual income taxes bring in.⁴

1
U.S. Treasury Fiscal Data. Government Revenue
2
U.S. Treasury Fiscal Data. Federal Spending
3
Social Security Administration. FY 2026 Budget Summary Tables
4
Congressional Budget Office. The Budget and Economic Outlook: 2026 to 2036
5
U.S. Senate Committee on Appropriations. FY26 Defense Bill Summary
6
U.S. Department of Veterans Affairs. FY 2026 Budget Highlights
7
Congressional Budget Office. The Budget and Economic Outlook: 2026 to 2036
8
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
9
Office of the Law Revision Counsel. 26 USC 32 – Earned Income
10
U.S. Courts. The Judiciary Fiscal Year 2026 Congressional Budget Summary