What Does Social Security Tax Pay For?

Social Security tax is a mandatory payroll deduction authorized by the Federal Insurance Contributions Act (FICA), levied on both employees and employers. For those who are self-employed, a similar tax is paid under the Self-Employment Contributions Act (SECA). The funds collected are for the Social Security program, which provides a safety net for individuals in cases of retirement or disability. This tax is separate from the Medicare tax, although they are often collected together under the FICA framework.

The Social Security Trust Funds

The revenue from Social Security taxes does not enter the U.S. government’s general fund. Instead, it is directed into two distinct accounts: the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. These funds operate as a dedicated financial system where tax revenues are deposited, and all benefit payments and administrative expenses are withdrawn.

Any surplus funds within the OASI and DI trust funds are invested in special-issue U.S. Treasury securities. These securities are loans to the federal government that earn interest, providing an additional source of income for the trust funds. This interest supplements the revenue collected from payroll taxes and supports the long-term financial stability of the Social Security system.

Retirement and Survivor Benefits

The OASI Trust Fund is the source of payments for retirement and survivor benefits. To qualify for retirement benefits, individuals must accumulate a sufficient number of work credits over their careers. In 2025, a worker earns one credit for each $1,810 of earnings, up to a maximum of four credits per year. Forty credits are needed to be eligible for retirement benefits, which for most people translates to about 10 years of work.

The age at which an individual chooses to begin receiving retirement benefits has a significant impact on the monthly payment amount. Full retirement age, the age at which a person can receive their full, unreduced benefit, is 67 for those born in 1960 or later. Individuals can opt to start receiving benefits as early as age 62, but doing so results in a permanent reduction in their monthly payments. Spouses and, in some cases, divorced spouses of eligible workers may also be entitled to receive benefits based on the worker’s record.

Survivor benefits are also paid from the OASI Trust Fund to the families of workers who have passed away. These benefits provide financial support to dependents who have lost a source of income. Eligible recipients can include surviving spouses, who may receive benefits at retirement age or earlier if they are caring for the deceased worker’s child who is under age 16. Minor children and dependent parents are also eligible for benefits in certain circumstances.

Disability Insurance Benefits

The Disability Insurance (DI) Trust Fund is designated to provide income to individuals who are unable to work due to a significant medical condition. This program, known as Social Security Disability Insurance (SSDI), is for workers who have paid into the Social Security system. To be eligible for SSDI, a worker must have a sufficient work history, and the number of credits required varies depending on the age at which the disability occurs.

A requirement for receiving SSDI is meeting the Social Security Administration’s strict definition of disability. The medical condition must be severe enough to prevent the individual from engaging in “substantial gainful activity.” This means the person is unable to perform the work they did previously and cannot adjust to other types of work. The disability must also be expected to last for at least one year or result in death.

SSDI should be distinguished from Supplemental Security Income (SSI). While both programs provide financial assistance to individuals with disabilities, SSI is a needs-based program funded by general tax revenues, not Social Security taxes. SSI eligibility is based on having limited income and resources, whereas SSDI eligibility is tied to a worker’s history of paying Social Security taxes.

Administrative Costs of the Social Security Administration

A small portion of the revenue collected from Social Security taxes is used to cover the operational costs of the Social Security Administration (SSA). On average, these costs amount to less than one cent of every tax dollar collected.

The funds allocated for administrative costs are used for a variety of functions. This includes paying the salaries of SSA employees, maintaining the agency’s network of offices and data centers, and investing in the technology required to manage a massive volume of records and payments. These funds also support processing new applications for benefits, issuing payments, and implementing measures to prevent and detect fraud.