Who Pays for Social Security?

Workers and employers pay for Social Security. Workers pay 6.2 percent of their earnings up to $110,100 a year in 2012. (The cap on taxable earnings usually rises each year with average wages.) Employers pay a matching amount for a combined contribution of 12.4 percent of earnings. Self-employed persons pay both the employee and employer share for a total 12.4 percent. (Half of this contribution, the employer share, is a deductible business expense for income tax purposes.) Also, higher-income Social Security beneficiaries pay federal income taxes on their benefit income, and these taxes help pay for Social Security.

For 2011 and 2012, the premiums that workers pay for Social Security protection were temporarily reduced from 6.2 percent to 4.2 percent. Employers continue to pay the 6.2 percent rate. This “payroll tax holiday” – enacted in 2010 and then extended through 2012 – is scheduled to end at the end of 2012. The lost revenue to the Social Security program – some $103 billion in 2011, and likely a similar amount in 2012 – is being made up from the government’s general fund.

In 2012 the average worker made $44,644 a year, according to the Social Security Administration. This worker paid $1,875 in Social Security taxes in 2012 (4.2 percent of salary, due to the payroll tax holiday), and the employer paid $2,768 (or 6.2 percent), with their combined taxes being $4,643. The maximum tax for workers is set at $4,485 in 2011, and approximately 5 percent of all workers will earn more than the $110,100 tax cap. Earnings above the cap now account for 16 percent of the aggregate pay of all workers who pay into Social Security.

An additional tax on workers' earnings pays for Medicare hospital insurance. This is a 1.45 percent levy, paid by workers and employers each on all wages, for a total tax of 2.9 percent. Self-employed persons pay 2.9 percent.

Examples: Jon Smith makes $50,000 in 2012, and Jane Doe makes $120,000 for the year. In most years, Jon would pay $3,100 for Social Security (6.2 percent of $50,000) and $725 for Medicare (1.45 percent of $50,000) for a total of $3,825 for the year. His employer would pay an identical amount. Jane would pay $6,826 for Social Security (6.2 percent of the 2012 maximum wage base of $110,100) and $1,740 for Medicare (1.45 percent of $120,000 salary), for a total of $8,566 for 2012. Her employer would pay the same.

In 2012, due to the temporary payroll tax reduction, Jon would contribute $2,100 to the Social Security program (4.2 percent of his salary), and Jane would contribute $4,624. Their employers’ contributions would not change.

For more information, see:

• Social Security Benefits, Finances, and Policy Options: A Primer
• Social Security Across Generations: Benefit Cuts Will Fall on Today's Children and Grandchildren, Social Security Fact Sheet No. 1
• Strengthening Social Security for the Long Run, Social Security Brief No. 35
• The Effects of Reducing Eligibility Requirements for Social Security Retirement Benefits
• Crediting Care in Social Security: A Proposal for an Income Tested Care Credit
• Retirement Security for Family Elder Care Givers with Labor Force Employment
• Children's Stake in Social Security, Social Security Brief No. 27
• Survivor Benefits for Families of Deceased Service members and Overseas Contract Workers, Social Security Brief No. 23

Read what some NASI members think:*

• Elisa Walker: "Social Security: It’s for young people, too” (2012) 
• Jasmine Tucker: "Thankful for Three Key Social Insurance Programs That Kept More Than 24.0 Million Americans Out of Poverty in 2010” (2011)
• Anna Rappaport: "Women are the majority of older Americans and many of them are alone" (2005)

* The views of NASI members are their own and not an official position of the National Academy of Social Insurance or its funders.