Social Security tax is a federal payroll tax that funds retirement, disability, and survivor benefits

The federal payroll tax that supports retired workers is Social Security tax, formally called the Old-Age, Survivors, and Disability Insurance (OASDI) tax. It appears on your pay stub as a deduction labeled "Social Security" or "OASDI," and your employer contributes an equal amount on your behalf. The money collected does not sit in an account with your name on it — instead, it flows into a single trust fund that pays benefits to current retirees, disabled workers, and survivors of deceased workers.

Social Security tax is separate from Medicare tax, which funds hospital insurance. Both are withheld from your paycheck, but they fund different programs and have different tax rates and wage caps.

Key Takeaways

  • Social Security tax is 12.4 percent of your wages: you pay 6.2 percent and your employer pays 6.2 percent, up to a wage cap that changes each year.
  • The tax funds three types of benefits: retirement benefits for workers age 62 and older, disability benefits for workers who cannot work, and survivor benefits for the families of deceased workers.
  • You must work and pay Social Security tax for at least 10 years (40 quarters) to become may be able to access for any Social Security benefit.
  • The amount you receive in retirement is based on your highest 35 years of earnings, not on how much tax you paid in total.

The tax rate and wage cap

The Social Security tax rate is fixed at 12.4 percent of your gross wages. If you are an employee, you pay 6.2 percent and your employer pays 6.2 percent. If you are self-employed, you pay both portions — 12.4 percent — though you can deduct half of it when you file taxes.

The tax applies only to wages up to an annual cap. That cap changes each year based on average wage growth. For 2024, the cap is $168,600, meaning you pay Social Security tax on the first $168,600 of your income but not on anything above that. High earners stop paying into Social Security partway through the year once they hit the cap; lower-wage workers pay on all their earnings.

Medicare tax, by contrast, has no wage cap — you pay 2.9 percent on all your earnings, plus an additional 0.9 percent on wages above $200,000 (if single) or $250,000 (if married filing jointly).

Who pays and who receives benefits

Nearly all workers in the United States pay Social Security tax. The main exceptions are some federal employees hired before 1984, certain railroad workers, and some religious groups that have opted out. If you work for a private employer, a state or local government, or are self-employed, you pay Social Security tax.

Benefits go to three groups. Retired workers can claim benefits as early as age 62, though the monthly amount is smaller than if they wait until their full retirement age (which ranges from 66 to 67 depending on birth year) or until age 70. Disabled workers of any age can receive benefits if they have worked long enough and a doctor certifies they cannot work for at least 12 months. Survivors — including a spouse, ex-spouse, children, and parents — can receive benefits if the worker dies.

How the trust fund works

Social Security operates as a pay-as-you-go system. The payroll taxes collected today pay the benefits going out today. The Social Security Administration holds a reserve fund called the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund, but these reserves are not meant to cover all future benefits — they are a buffer for months when benefit payments exceed incoming tax revenue.

The trust funds have faced periodic shortfalls. When more money goes out than comes in, the reserve shrinks. If the reserve is depleted entirely, incoming tax revenue alone would cover only a portion of scheduled benefits. Congress has changed the tax rate, the wage cap, and the retirement age in the past to keep the system solvent, and any future changes would require legislative action.

Your individual Social Security record tracks your earnings history and the taxes you have paid, but your benefits are not calculated as a return on your personal contributions. Instead, the formula looks at your highest 35 years of earnings and calculates a monthly benefit amount based on when you claim.

Earnings history and benefit calculation

To receive any Social Security benefit, you must have worked and paid Social Security tax for at least 10 years, which equals 40 quarters of coverage. A quarter of coverage is earned by paying a minimum amount of Social Security tax in a three-month period; the threshold changes yearly but is relatively low — in 2024, you earn one quarter for every $1,550 of wages.

Once you have 40 quarters, your benefit amount depends on your earnings record. The Social Security Administration looks at your highest 35 years of earnings (adjusted for inflation) and calculates your Primary Insurance Amount (PIA). This is the monthly benefit you receive if you claim at your full retirement age. If you claim earlier, the amount is reduced; if you delay past your full retirement age, the amount increases by about 8 percent per year until age 70.

You can view your earnings record and benefit estimate by creating an account on ssa.gov. The statement shows your recorded earnings for each year and an estimate of what you might receive at different claiming ages.

Differences between Social Security tax and other payroll deductions

Social Security tax is one of several deductions from your paycheck. Medicare tax (2.9 percent) funds hospital insurance and is separate. Federal income tax withholding is also separate and depends on your filing status and the W-4 form you complete with your employer. Some states and cities also collect income tax.

Unlike income tax, which is based on your total income and filing status, Social Security tax is a flat 6.2 percent on wages up to the annual cap, with no deductions or adjustments. You cannot reduce your Social Security tax by claiming dependents or making charitable donations.

Frequently Asked Questions

What happens to my Social Security taxes if I die before retirement?

Your family may receive survivor benefits if you have worked long enough. A spouse caring for your children under age 16, your children under 19 (or 19 if still in high school), your spouse at age 60 or older, and your parents at age 62 or older may all be may be able to access. The total amount paid to your family is limited to a family maximum, usually 150 to 180 percent of what you would have received at full retirement age.

Can I get back the Social Security taxes I paid if I move out of the country?

No. Social Security taxes fund the current system and cannot be refunded. However, you may still receive benefits if you move abroad, depending on your citizenship and the country you move to. Some countries have agreements with the United States that affect benefit payments. Contact the Social Security Administration for details about your specific situation.

Do I pay Social Security tax on tips, bonuses, or other income?

Yes, Social Security tax applies to all wages, including tips, bonuses, commissions, and most other compensation for work. The only common exceptions are certain fringe benefits like health insurance premiums paid by your employer. Self-employment income from a business or freelance work is also subject to Social Security tax.

Why do I pay Social Security tax if I plan to retire early?

You pay Social Security tax because it funds benefits for current retirees, disabled workers, and survivors — not just your own future retirement. The system is designed so that workers support retirees today, and future workers will support you when you retire. Additionally, you build a record of earnings that determines your benefit amount whenever you do claim.