What Is the Purpose of Social Security Taxes?
The Social Security system was created by Social Security Act that was passed on August 14, 1935. In 1940, the first benefits were paid out and a special tax was created to pay the benefits. The system was originally designed to only distribute payments to the worker contributing to it, but it was soon expended to cover payments to spouses or dependents.
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Social Security Taxes
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Social security taxes are a special tax that is placed on the first $106,800 of income for individuals as of 2009. This tax is used to pay benefits to those who have already paid into the system and are now retired.
Taxpayers
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For individual who works for a company, the tax is split evenly between the employer and employee, 6.2 percent each. Individuals who are self-employed must pay the full 14.4 percent.
Retirement Age
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The original age for receiving full benefits was 65 because that was the standard retirement age at the time the system was enacted. However, the age gradually increased and for anyone born after 1960, the age is 67.
Other Taxes
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According to the Social Security Administration, income taxes and other taxes have never been used to a significant extent to pay for social security, therefore a separate tax is needed to pay benefits.
Shortfall
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The amount taken in by the Social Security taxes has fallen short of the payouts 11 times. In those years, the payments have been covered by trust fund bonds. As of 2009, the Social Security Administration has taken in almost $11 trillion and given out payment of almost $9 billion.
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