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. Medicare

    A U.S. federal health program that subsidizes people who meet ...
  5. Social Security

    A United States federal program of social insurance and benefits ...
  6. Payroll Tax

    Tax an employer withholds and/or pays on behalf of their employees ...
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  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. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  3. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  4. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  5. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>
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    Social Security payments are not included in the U.S. definition of the gross domestic product (GDP). Transfer Payments For ... Read Full Answer >>

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