Social security tax

Social Security is the Federal Old-Age, Survivors and Disability Insurance (OASDI) Program of the United States. It is a social insurance program funded through the payroll taxes collected from the employees of the United States. The collected taxes are formally entrusted to Trust Funds to provide retirement benefits and Medical Insurance to individuals who meet certain eligibility criteria. The major beneficiaries of this tax are the retired senior citizens (OA), Widows (S) and the Disabled (D). When implemented by President Roosevelt in 1935, this program covered the unemployment tax too.

Generally, the U.S. social security and Medicare taxes are deducted from the payments of wages for services performed as an employee in the United States. These taxes are deducted from the wages of the employee and the employer irrespective of whether they are residents or citizens of the United States. In certain cases these taxes are applicable to services performed outside the United States, too. The United States Government has social security agreements with foreign countries to coordinate social security coverage and taxation of employees working abroad. These are generally referred to as totalization agreements. These agreements ensure that the person does not have to pay the social security tax to more than one country.

A person would ideally qualify for old age benefit if he has worked for at least ten years earning not less than $3,120 per year. A person becomes eligible for the Social Security Old Age benefit when he/ she reach the full retirement age. It could vary from 65-67 years depending on the year of birth of the person. However, workers have the option to avail the benefits right from the age of 62. But that would permanently reduce the benefits. In case the worker starts receiving the benefits later than the full retirement age, the amount would be permanently increased. The benefits are usually increased once a year depending on the increase in the cost of living. For the year 2007, the Social Security tax is 7.65% of the first $97,500 of the employee\\\'s salary, to be paid by the employee and the employer as well. For any added income, the employee as well as the employer is required to pay1.45% to Medicare. In case of the self-employed, 15.3% of their first $97,500 should go to social security. For additional incomes incomes, they should pay a further 2.9% to Medicare.

However it is observed that the ratio of people paying taxes to those receiving the benefits is decreasing every year. This is attributed to the increase in life expectancy without subsequent increase in the retirement age, and higher birth rate. But considering the amount given out each year, the U.S Social Security Program is the largest government program in the world.

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