Social Security Act


DEFINITION of 'Social Security Act'

A law enacted by President Franklin D. Roosevelt in 1935 to create a system of transfer payments in which younger, working people support older, retired people. Under the act, the government began collecting the Social Security tax from workers in 1937 and began making payments in 1940.

BREAKING DOWN 'Social Security Act'

The Social Security tax combines with the Medicare tax to form what is known as FICA, or the payroll tax. As of 2010, the Social Security tax rate was 6.2% and the Medicare tax rate was 1.45%. The total payroll tax of 7.65% is deducted from the employee's paycheck; the employer must make a matching contribution of an additional 7.65%. The employee effectively pays the entire tax, as the employer's matching requirement reduces what he is able to pay his employees. Thus, Social Security represents a tax of 12.4% on the employee in addition to Medicare taxes, federal income taxes, state and local income taxes, sales taxes and numerous other less-noticed taxes.

To learn more about the Social Security Act, check out Why is Social Security running out of money?

  1. Replacement Rate

    The percentage of a worker's pre-retirement income that is paid ...
  2. Social Security Tax

    The tax levied on both employers and employees used to fund the ...
  3. Social Security Benefits

    The monetary benefits received by retired workers who have paid ...
  4. Social Security

    A United States federal program of social insurance and benefits ...
  5. Medicare

    A U.S. federal health program that subsidizes people who meet ...
  6. Payroll Tax

    Tax an employer withholds and/or pays on behalf of their employees ...
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  2. Do tax brackets include Social Security?

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  3. Are Cafeteria plans subject to FICA, ERISA or FUTA?

    Cafeteria plans are employer-sponsored benefit plans that provide both taxable and nontaxable, or qualified, benefit options ... Read Full Answer >>
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    The short answer is yes, if you haven't reached age 62 by December 31, 2015. The October 2015 budget bill disrupted two strategies ... Read Full Answer >>
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    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
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