How is Social Security financed?
Social Security is financed through a dedicated payroll tax. Employers and employees each pay 6.2 percent of wages up to the taxable maximum of $137,700 (in 2020), while the self-employed pay 12.4 percent.
In 2019, $944.5 billion (89 percent) of total Old-Age and Survivors Insurance and Disability Insurance income came from payroll taxes. The remainder was provided by interest earnings $80.8 billion (7.6 percent) and revenue from taxation of OASDI benefits $36.5 billion (3.4 percent).
The payroll tax rates are set by law, and for OASI and DI, apply to earnings up to a certain amount. This amount, called the earnings base, rises as average wages increase.
|SOURCE: 2020 OASDI Trustees Report|