Social Security Act

AAA

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.

INVESTOPEDIA EXPLAINS '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?

RELATED TERMS
  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 ...
RELATED FAQS
  1. What is the history of the sustainable growth rate?

    The sustainable growth rate (SGR) can refer to different things. The two most common references are to the Medicare SGR or ... Read Full Answer >>
  2. When can benefits be received from a provident fund?

    Like most retirement savings vehicles, participants in provident funds are eligible to receive benefits at retirement. However, ... Read Full Answer >>
  3. Is Social Security Income a perpetuity?

    Because Social Security income does not continue indefinitely, it cannot be classified as a perpetuity. What Is a Perpetuity? A ... Read Full Answer >>
  4. What types of investments are allowed in a provident fund?

    Different provident funds have different investment rules and restrictions. The allowable investments in an Indian provident ... Read Full Answer >>
  5. How does a provident fund compare to U.S. Social Security?

    A provident fund shares many attributes of the U.S. Social Security program, including government sponsorship and set contribution ... Read Full Answer >>
  6. Are all disabilities treated the same for Substantial Gainful Activity (SGA) thresholds?

    Section 520 of the Social Security Act indicates that U.S. citizens are eligible to receive disability benefits if they are ... Read Full Answer >>
Related Articles
  1. Retirement

    How Much Social Security Will You Get?

    You've been paying in for years - now it's time to find out what the system owes you.
  2. Retirement

    Create Your Own Social Security Fund

    The government's Social Security program may not last forever - be prepared by setting up your own.
  3. Retirement

    Maximize Your Social Security Benefits

    The plan's cost of living adjustments can provide protection against inflation.
  4. Taxes

    Avoid The Social Security Tax Trap

    Government benefits can cost you big money! Know the income thresholds before you file.
  5. Retirement

    Introduction To Social Security

    You've probably contributed to this fund, but will you reap the benefits? Find out here.
  6. Taxes

    Understanding The U.S. Tax Withholding System

    Understanding the origins of our tax withholding system is crucial to getting the most out of it.
  7. Taxes

    The History Of Taxes In The U.S.

    The number of taxes that we now consider a given did not always exist. Find out how they arose.
  8. Options & Futures

    4 Unusual Ways To Boost Social Security Benefits

    Find out how to work the system to get the highest total benefits the law allows.
  9. Retirement

    Top 6 Myths About Social Security Benefits

    Misinformation on retirement benefits is common. We'll set the record straight.
  10. Taxes

    Estate Planning for a Surviving Spouse

    Estate planning for surviving spouses can be difficult for a number of reasons, so it's important to have good support and financial advice.

You May Also Like

Hot Definitions
  1. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  2. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  3. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  4. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  5. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  6. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!