If you work, you are probably aware of the Social Security taxes that come out of your paycheck. Social Security Tax, otherwise known as FICA Tax (Federal Insurance Contributions Act) is paid by employees and employers to fund the Social Security and Medicare programs. Since a relatively large portion of your income goes toward this tax, it is important to understand where it actually goes.
Social Security
The bulk of your FICA Tax money goes into the Social Security program. To be exact, roughly 85 cents of each dollar goes towards Social Security. The money that current wage earners put into the program is used to pay the monthly benefits to current retirees, families, and surviving spouses and children of workers who have died. Excess payments are allocated to a so-called trust fund that would pay future benefits.
Costs associated with administering the plan come directly from the trusts. The administration claims that for each Social Security tax dollar you pay, less than one cent goes toward administration costs.
Medicare
The remainder of the FICA Tax money you pay, roughly 15 cents of each dollar, goes into the Medicare program. Like Social Security, the money paid by current wage earners is used to pay for some hospital and medical care costs incurred by current Medicare beneficiaries, with the excess being accounted for in a trust fund.
