Today, I will quickly review how payroll tax funds the OASDI trust fund. OASDI stands for Old Age, Survivors, Disability Insurance Tax. The money collected from payroll tax goes into 2 Social Security trust funds. The first one pays out retirement, survivor and spousal benefits and the second one pays out disability benefits.
FICA taxes (Federal Insurance Contributions Act)
· Both the employer and employee pay 6.2% Social Security payroll tax on the taxable wage base of $142,800 for 2021. There is no social security payroll tax on the earnings threshold over $142,800. The threshold is adjusted each year.
SECA taxes (Self Employed Contributions Act)
· Self-employed individuals pay 12.4% Social Security tax on self-employment income up to the 2021 threshold ($142,800).
· SECA taxes are only paid on 93.80% of net earnings because half of the tax is deductible 12.40% / 2 = 6.2% (deductible)
A summary of the 2020 Annual Reports from the Social Security and Medicare Boards of Trustee states the following:
The Old-Age and Survivors Insurance Trust Fund will be able to pay scheduled benefits until 2034. At that time, if no changes are made, the fund’s reserves will be depleted, and the scheduled tax income is projected to be sufficient to pay 76% of the scheduled benefits.
It is important to understand that this does not mean the Social Security Trust Fund is going to run dry. Many consumers misunderstand the shortfall and feel the need to take their benefits early at age 62. There are consequences to yourself and your spouse (if married) by taking the benefits early. There are times it makes sense to do so but make sure you understand all your options before making a rash decision.
Copy and past the link to see the 2020 SS and Medicare Summary Report
https://www.ssa.gov/oact/TRSUM/