How is Social Security funded?

Social Security is primarily funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA). This system requires employers and employees to contribute a certain percentage of earnings to the Social Security Trust Fund, which is allocated to provide benefits to retired individuals, disabled individuals, and survivors of deceased workers.

FICA taxes play a crucial role in ensuring the sustainability of the Social Security program. Each paycheck reflects deductions specifically set aside for Social Security, and these funds are then used to pay benefits to current recipients. The structure of payroll taxation under FICA is designed to be proportional, meaning that those who earn more pay more into the system, which helps support the broader population that relies on Social Security for financial stability in retirement or in the event of disability.

While other funding sources like state taxes, investment returns, or private donations are mentioned in the choices, they do not contribute to the funding of Social Security. The program is distinctly supported by mandatory federal payroll contributions, ensuring predictable funding necessary for managing ongoing benefit obligations.