Where Does Social Security Money Come From?

Q: What are the sources of income to the Social Security Administration?

A: The Social Security Administration has three basic sources of income: payroll taxes, federal income taxes on a small portion of SSA benefits and interest paid to the SSA trust funds. 

Quoting from the Financing section of the recently published Fast Facts & Figures About Social Security, 2013:

 “Social Security is largely a pay-as-you-go program. Most of the payroll taxes collected from today’s workers are used to pay benefits to today’s recipients. In 2012, the Old-Age and Survivors Insurance and Disability Insurance Trust Funds collected $840.2 billion in revenues. Of that amount, 83.8% was from payroll tax contributions and reimbursements from the General Fund of the Treasury and 3.2% was from income taxes on Social Security benefits. Interest earned on the government bonds held by the trust funds provided the remaining 13.0% of income. Assets increased in 2012 because total income exceeded expenditures for benefit payments and administrative expenses.”

 Income to Social Security in 2012 totaled approximately $840.2 billion consisting of about 704.1 billion from payroll taxes and General Fund of the Treasury reimbursements, about 26.9 billion from income taxes on Social Security benefits, and about 109.2 billion in interest earned by the trust funds. More about each of these follows. 

Payroll taxes: Employers, employees and the self-employed pay Social  Security payroll tax up to a an annual yearly limit. This limit is $113,700 in 2013. The 2013 tax rate is set by statute at 6.2 percent for employees and employers, each. Thus, an individual with wages equal to or larger than $113,700 would contribute $7,049.40 to the Social Security program in 2013, and his or her employer would contribute the same amount. The 2013 payroll tax rate for self-employment income is 12.4 percent.

General Fund reimbursements in 2012 were largely due to the temporary payroll tax reduction for employees and the self-employed. Legislation establishing the 2 percent payroll tax reduction also provided for transfers from the General Fund of the Treasury to the Social Security trust funds to offset lost revenues that would have otherwise been received by Social Security.

Income taxes: Based on overall taxable income, some people have to pay federal income taxes on Social Security benefits. Most beneficiaries do not pay income tax on their benefits, some pay on up to 50 percent of benefits and some on up to 85 percent of benefits. No one pays federal income tax on more than 85 percent of his or her Social Security benefits. This income is designated for Social Security. 

Trust Funds: There are two Social Security Trust Funds, the Old Age & Survivors Trust Fund and the Disability Trust Fund. Find Trust Fund information, including transactions, holdings and interest rates, at the About Our Agency tab (solvency section) of www.socialsecurity.gov

In 2012, the combined income of about $840 billion exceeded total expenditures of about $786 billion so agency reserves grew by about $54 billion. Under intermediate assumptions, the Trustees Report anticipates growth until approximately 2021 for the combined SSA Trust Funds although the Disability Trust Fund is the weaker of the two. Overall expenditures will exceed overall income by about 2021. (See Highlights section of the 2013 Annual Trustees Report.)

 For more information:

Fast Facts & Figures About Social Security, 2013 (see financing section)

2013 Trustees Report (see Highlights Section for summary)