In: Economics
Explain who bears the employer’s portion of social security payments.
Workers and employers are responsible for social security. Workers pay up to a maximum of 6.2% of their earnings in 2017, which is $127,200 a year. (The gross income limit typically increases with average wages each year.) Employers pay a similar sum for a total share of 12.4% of earnings. Self-employed people pay a total of 12.4 percent to both the worker and the employer share. (Half of this donation, the employer's portion, is a deductible business expense for income tax purposes.) In fact, higher-income Social Security recipients pay federal income taxes on their insurance income, and these taxes contribute to social security payments.
Social security works like a flat tax. Everyone pays the same rate, no matter how much they earn, up to a certain limit at least. For all salaries and self-employment income earned by an employee up to a maximum dollar limit, a single rate of 12.4 percent is imposed as of 2019. Half of this tax is paid by the worker by withholding wages. The employer pays the other half. Employees thus pay up to the maximum wage base 6.2 percent of their wage earnings and employers also pay up to the maximum wage base 6.2 percent of their employee's wage earnings, for a total of 12.4 percent.
You pay income taxes are deposited into the U.S. general fund. These can be used for any reason, but there are different social security taxes. Such taxes are paid into special trust funds that can only be used to pay current and future retirement benefits to Social Security, as well as disability benefits and pensions for widows and widows. Today's employers are contributing their amount, which in effect is being charged to the beneficiaries of today— the employees who have retired and are now collecting benefits from social security. When the employees of today leave, they will tap into the benefits that will be provided by the workers of tomorrow.