Have you ever wondered how Social Security is funded? If your guess was “You and I are funding it”, you’d be right…since you already know who’s funding it, let’s focus on the percentage of your income you’re paying into the system and where it ends up.
If you’re working in the private sector, in other words, you don’t work for the government, you and your employer will each pay 6.2% of your wages into the system. If you work for yourself, you will pay both sides, for a total of 12.4%.
To give you an example, if your household income is $100,000, you will pay $6,200 in social security taxes, and $12,400 if you’re self employed.
There is a taxable income limit, though, and it changes every year. For 2019, the maximum is $132,900. Every dollar above that amount is exempt from social security tax!
So where does it all end up? First off, if you didn’t guess, the IRS is taxed (no pun intended) with the task of depositing your payments into one of two trusts: the Federal Old-Age and Survivors Trust Fund, and the Federal Disability Insurance Trust Fund. If you’d like to learn how the trusts work, head back to our channel and look for the videos with their titles.