Percentage of Social Security Paid Through Payroll Taxes
The Federal Insurance Contributions Act (FICA) was a part of the 1939 Social Security Act that imposed a federal income tax and a payroll tax. The FICA system provides benefits to the elderly and disabled. The Medicare tax, on the other hand, funds the hospital insurance system. Both the employee and the employer make FICA contributions through payroll taxes every pay period.
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FICA Tax Rates
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The employer and employee each pay an equal percentage of the FICA payroll tax. Employers calculate FICA based on gross earnings before any deductions at rate of 7.65 percent for the employer and 7.65 percent for the employee. This is the total sum deducted for both Social Security and Medicare. Social Security or Old-Age Survivors and Disability Insurance (OASDI) receives 6.2 percent of the total deduction from both the employer and the employee. Medicare gets the remaining 1.45 percent from both the employer and the employee. In 2011, Congress temporarily lowered the overall FICA rate to 5.65 percent for the employee.
Payroll Tax
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Everyone legally employed in the United States pays a form of the payroll tax. This includes self-employed individuals, who must pay a self-employment tax of 15.3 percent. This tax equals the payroll tax contribution for both the employer and the employee. The Social Security system functions by funding benefits paid to individuals currently collecting Social Security retirement or disability with payments made by individuals still working.
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Paying Too Much
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The tax code requires you to pay the payroll tax on the first $106,800 of income earned in a tax year. Therefore, if your earnings exceed $106,800 and you have more than one job, it is possible that you overpaid your payroll taxes. By law, every employer must deduct Social Security taxes from your wages, making it possible to surpass your maximum contribution with multiple jobs. If you overpaid your payroll taxes, you can use the overpayment to offset other income tax obligations or receive a refund of the overpayment after filing your tax return.
Insolvency
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Since its implementation, the Social Security system has provided a safety net for the elderly and disabled. Paying into the system today helps to ensure the system can cover today's obligations and payments. However, according to 2009 government forecasts discussed in The Washington Post, by 2037 the Social Security System will not have enough funds to fully pay retiree benefits. Additionally, the part of the Social Security System that subsidizes disabled Americans will not have sufficient funds to pay benefits starting in 2020.
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