Updated: Aug 16, 2022
A Social Security tax gets collected from employees and employers in the United States. This money funds a program of the same name through the use of a payroll tax through the Federal Insurance Contributions Act.
The Self-Employed Contributions Act covers individuals who don’t work for a traditional employer. The process is the same for withholding, but it requires people employed as sole proprietors, freelancers, or in similar ways to pay for the employee and employer share of the Social Security tax on up to 92.35% of net earnings.
The total tax rate in 2019 is 12.4%, divided evenly between employees and employers. This amount applies to a maximum base salary or wage of $132,900. This amount is subject to change each year.
That money then goes toward several different expenses. 72% of your Social Security tax goes toward the trust fund that pays monthly benefits. Another 16% goes toward disability benefits, while 9% gets directed toward survivor benefits. Less than 1% pays for the administrative costs of the program.
Some People Do Not Pay the Social Security Tax
Although the Social Security tax applies to most employees and employers, some specific exceptions can impact the income of some individuals.
Students who receive employment at the same school where they are enrolled and where that work is contingent upon their continued status don’t pay this tax. Non-resident workers in the U.S. employed by a foreign government don’t pay either. Members of religious groups who are opposed to receiving benefits from the Social Security program during retirement or in other circumstances are exempt as well.
What Are the Available Social Security Benefits?
The Social Security program is primarily a retirement program that offers full eligibility at age 66 years, two months for individuals born in 1955. It will rise to age 67 for everyone born in 1960 or later. Early retirement benefits are available at age 62 but at a reduced monthly rate. You can also wait to take benefits until age 70 to increase what you receive.
The maximum retirement benefit in 2017 for someone who waited until age 70 to collect benefits was $3,538 per month. Most people earn less than $20,000 per year from Social Security, averaging about $1,300 per month.
If you took early retirement at age 62, then your benefits would be up to 30% lower than what they would be if you waited for the full amount.
Social Security also provides a survivor’s insurance program and disability assistance.
You become eligible for benefits at the early, standard, or late retirement age by earning 40 credits. That equates to at least ten years of work. Then your retirement benefit gets based on how much you earned during your career.
That means your benefits may be lower if there were some years that you had low earnings or didn’t work at all.
The program will also pay monthly benefits to people who cannot work for one year or more because of a disability. You must meet Social Security’s definition of a disability and worked long enough in a recent job to qualify.
Some spouses and children can qualify for benefits if they meet specific requirements.
Survivor Benefits Through Social Security
The survivor benefits that are available through Social Security work a little differently from the retirement program. That’s because the goal is to help families get through a difficult financial situation.
Older workers may need the full 40 credits before qualifying for this program, but some young employees can be eligible with as few as six credits.
Couples must be married for at least nine months before a death occurs unless the cause was accidentally or related to their military duty. Benefits then start when the surviving spouse turns 60 or is caring for a child under the age of 16.
Some divorced spouses can qualify for survivor’s benefits as well.
Who Can Qualify for Social Security Benefits?
All you need is a Social Security number and a record of filing taxes that report your income to qualify for the program. The program collects this information over time and then applies their benefit calculation once you apply for benefits.
Anyone who is lawfully present in the United States can qualify for benefits as well. You collect credit for every $1,320 you earn and report.
96% of Americans can qualify for Social Security benefits because of their work history. Although the actual monthly benefit varies based on your work history, you can still receive the help you need when you reach the age of 62 or later. You will want to speak with a financial advisor if you qualify for Social Security benefits or will shortly to ensure that you receive the full amount possible. If you’re still working, then the tax you see on your paycheck will help you to qualify for this program one day.