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Understanding Social Security Taxes and How They Work

Social Security taxes are deductions taken from paychecks that fund the Social Security program. When you work, both you and your employer contribute a portion of your wages to Social Security. As of 2024, employees pay 6.2% of their gross wages, while employers contribute an additional 6.2%. Self-employed individuals pay both portions, totaling 12.4% of their net self-employment income. These contributions go into a trust fund managed by the Social Security Administration, which then distributes monthly payments to retirees, disabled workers, and survivors of deceased workers.

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Understanding how these deductions accumulate over time is important for financial planning. Each quarter, your employer reports your wages and Social Security contributions to the Social Security Administration through wage reports. These reports create a record of your earnings history, which determines how much you may receive in retirement benefits. The Social Security Administration maintains this earnings record throughout your working years.

There is a wage base limit for Social Security taxes. In 2024, you only pay Social Security taxes on income up to $168,600 per year. Any earnings above this amount are not subject to the 6.2% Social Security tax. This means higher-income earners pay a smaller percentage of total income toward Social Security compared to those earning below the wage base limit. Self-employed individuals should track their net self-employment income carefully, as this affects their tax obligation.

Many workers don't realize they can review their own Social Security earnings record for free. The Social Security Administration maintains an account for every worker, and you can view your lifetime earnings history online through your personal my Social Security account. This record shows how much you and your employers have contributed each year. Reviewing this information periodically helps ensure accuracy and allows you to understand what your future benefits may be based on.

Practical Takeaway: Create a free my Social Security account at ssa.gov to view your earnings record. Check that your reported wages match your tax returns and employment history. If you find errors, contact the Social Security Administration promptly to request corrections, as these affect future benefit calculations.

Medicare Taxes: What They Cover and Where They Go

Medicare taxes are separate from Social Security taxes and fund the Medicare health insurance program for people age 65 and older, some younger people with disabilities, and people with end-stage renal disease. The standard Medicare tax rate is 1.45% for employees and 1.45% for employers, totaling 2.9% of wages. Unlike Social Security taxes, there is no wage base limit—Medicare taxes apply to all wages, no matter how high your income is.

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Medicare taxes fund four different parts of the Medicare program. Part A covers hospital insurance, including inpatient hospital stays, skilled nursing facility care, hospice services, and some home health care. Part B covers medical insurance for doctor services, outpatient hospital care, and other medical services and supplies. Part D, added in 2003, covers prescription drug costs. Part C, also called Medicare Advantage, is an alternative way to receive Parts A and B benefits through private insurance companies. Your Medicare tax contributions help pay for these services when you become eligible.

Additional Medicare taxes apply to high-income earners. Beginning in 2013, individuals earning over $200,000 per year (or married couples filing jointly earning over $250,000) pay an extra 0.9% Medicare tax on income above these thresholds. This additional tax applies to wages, self-employment income, and unearned income such as interest and dividends. Self-employed individuals must pay both the employee and employer portions of standard Medicare taxes, plus the additional Medicare tax if their income exceeds the threshold.

Like Social Security, Medicare tax contributions are tracked throughout your working years. These contributions create a record of your work history and establish your eligibility for Medicare benefits. Generally, you become eligible for Medicare at age 65, though you may be eligible earlier if you have been receiving Social Security disability benefits for 24 months or have end-stage renal disease. Your Medicare tax payments are recorded quarterly when your employer files wage reports with the Internal Revenue Service.

Practical Takeaway: Understand that Medicare tax contributions are ongoing throughout your career, regardless of income level. Self-employed workers should track both portions of Medicare taxes when calculating estimated taxes. Review your annual earnings statements to ensure Medicare taxes are being reported correctly.

How to Access Your Social Security and Medicare Tax Records

The Social Security Administration provides a free online portal called "my Social Security" where you can view your personal earnings record, benefit estimates, and tax payment history. To create an account, visit ssa.gov and select the "Create an Account" option. You will need to provide personal information including your Social Security number, date of birth, and email address. The system uses identity verification questions to confirm your identity before granting access. This process takes just a few minutes and requires no payment.

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Your online earnings record shows your wages for each year you worked and the Social Security taxes deducted from your pay. It also displays the total Medicare taxes you paid. This statement covers your entire work history and is updated annually, typically in the spring. The record shows contributions dating back to the beginning of your career, allowing you to review decades of work history and tax contributions. If you notice discrepancies, you can contact the Social Security Administration to investigate.

For individuals without internet access or who prefer paper documents, the Social Security Administration will mail a printed earnings statement upon request. You can also visit a local Social Security office in person to review your records with a representative. Many people receive an annual Social Security statement by mail showing their earnings history and estimated benefits. If you don't receive one and are not yet receiving benefits, you can request a statement through your my Social Security account or by visiting a field office.

Your Medicare tax information is maintained by both the Social Security Administration and the Internal Revenue Service. When you file your annual income tax return, your Medicare taxes are reported on Form W-2 if you are an employee, or Schedule SE if you are self-employed. These forms show exactly how much Medicare tax was withheld or paid during the year. You can cross-reference this information with your pay stubs to ensure accuracy. If you find errors on your tax forms, notify your employer or tax professional immediately.

Practical Takeaway: Set a reminder to check your my Social Security account once per year. Compare your earnings record against old tax returns and W-2 forms to catch any reporting errors early. Report discrepancies to the Social Security Administration within three years, three months, and 15 days of the end of the year in which the wages were earned, as corrections become harder after this period.

What Your Social Security and Medicare Tax Payments Fund

Social Security taxes support monthly income payments to four main groups of beneficiaries. Retired workers receive benefits based on their earnings history and the age at which they begin receiving payments. As of 2024, the average monthly benefit for a retired worker is approximately $1,907. Disabled workers who can no longer work due to a serious medical condition may receive benefits before retirement age, with an average monthly payment of around $1,550. Survivors of deceased workers—including spouses and children—receive benefits based on the deceased worker's earnings record. Family members caring for young children or disabled family members of the deceased also may receive benefits.

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The total number of people receiving Social Security benefits has grown significantly over decades. As of 2024, approximately 67 million people receive Social Security benefits monthly, including 48 million retirees, 7 million disabled workers, and 6 million survivors of deceased workers. The total annual benefit payments exceed $1.3 trillion, making Social Security one of the largest federal programs. These payments come directly from current workers' Social Security taxes, creating a pay-as-you-go system where today's contributions fund today's benefits.

Medicare taxes support health insurance coverage for eligible individuals age 65 and older. According to the Centers for Medicare and Medicaid Services, approximately 66 million people are enrolled in Medicare, with the vast majority being age 65 or older. Medicare covers hospital stays, doctor visits, outpatient services, and prescription medications. In 2023, Medicare spending totaled over $848 billion, with hospital insurance (Part A) accounting for about $395 billion and medical insurance (Part B) accounting for approximately $296 billion. These costs are funded largely through payroll taxes collected throughout workers' careers.

Both programs operate as social insurance systems rather than investment accounts. Your Social Security and Medicare taxes do not accumulate in a personal account bearing your name. Instead, current tax revenue funds current benefit payments. However, both programs maintain trust funds to manage temporary sur