Social Security Taxes

Social protection is a broad range of interventions designed to mitigate risks and vulnerabilities that arise from participation in labor markets. These programs typically include social assistance and social insurance.

Otto von Bismarck is credited with creating the first version of social insurance–a system of pensions for formal sector workers financed by dedicated payroll taxes. This model has dominated since.


The ביטוח לאומי program provides benefits for individuals who have worked in covered employment. These benefits can include retirement, disability, and survivors benefits. These benefits are based on an individual’s work history and Social Security taxes paid by that person. Currently, most jobs are covered under the Social Security system. A small percentage of State and local government workers are not covered by Social Security because their work is not covered by either a Section 218 agreement or by federal law.

Expenditure on social protection benefits may take different forms, including cash payments, insurance policies, and services in kind. The various developments observed over time in relation to expenditure on the different social protection functions reflect a number of factors, such as changes in demand for specific benefits, demographic developments, and the focus/aim of political reforms with respect to the legislative framework governing social protection legislation.

During the period 2010-2020, only one EU Member State saw total expenditure on social protection benefits fall (Greece). On average, the rate of growth was higher for old age and survivors’ coverage than family/children’s, disability, and housing and social exclusion coverage. Moreover, the share of expenditure on family/children’s coverage was higher than for disability or housing and social exclusion. Nevertheless, the latter two categories had significantly lower shares of expenditure than those of old age and survivors’ coverage.


The capacity to fund welfare state services including long-term care (LTC) is becoming increasingly challenged, in part due to demographic change and shifts in labour market conditions. This challenge has implications for economic growth and the sustainability of tax-based funding systems (Barr et al., 2021; Roland et al., 2021; Wittenberg et al., 2002).

Social insurance systems have some potential advantages over tax-based systems. These include greater clarity and fairness. Social insurance schemes levy payroll taxes on employees and employers that are hypothecated for specific services, in this case LTC. This makes them less sensitive to changes in labour market conditions, as compared with tax-based systems where revenues are not specifically earmarked for LTC.

In addition to assisting adults with their daily needs, Social Security benefits can also help children and young people who cannot take care of themselves. These services are funded in part by the Social Services Block Grant (SSBG), which is administered by states. SSBG funds are passed directly to counties, which use them most often for child and adult protection services.

These services are designed to reduce dependence and promote self-sufficiency, as well as prevent and remedy neglect and abuse of children and adults. They also help to keep families together. In the United States, SSBG funding is administered by nine states. In fiscal year 2020, a high percentage of SSBG dollars went to child protective services and adult services.


To varying degrees, current social protection systems mingle redistribution with risk-sharing functions. They also require higher contributions that are perceived by many as taxes on work. A combination of a guaranteed social minimum and labor market regulation can reduce the size of these taxes.

The Employee Retirement Income Security Act (ERISA) regulates private employers who offer pension or welfare benefit plans for their employees. It sets minimum standards for participation, vesting, benefits accrual, funding and fiduciary responsibilities; provides a grievance and appeals process; establishes the Pension Benefit Guaranty Corporation; and requires disclosure of plan information to participants. ERISA is administered by the Department of Labor’s Employee Benefits Security Administration.

Students often need to work during school to help pay their tuition and living expenses. Earned income from student employment is not excluded from SSI benefit calculations. However, the federal Supplemental Security Income (SSI) program has special rules that exempt a student’s earnings from countable resources, known as the Student Earned Income Exclusion (SEIE).

In order to qualify for this exemption, an individual must be “regularly attending” school and earn no more than $1,780 per month during June and July. This exclusion applies to a maximum of one-half of the total monthly SSI benefit amount in August. In addition, unspent Title IV Higher Education Act (HEA) or Bureau of Indian Affairs (BIA) student assistance is not included in a person’s resources for SSI purposes regardless of whether the assistance is used or not.


Unless otherwise specified, Social Security benefits are taxed in the same way as other income. You may be required to pay state and local taxes as well. The department reports your income to the Internal Revenue Service. The department also withholds federal income tax from your benefits. The amount withheld is based on your weekly benefit rate, plus an allowance for dependents (if any). You can choose to have less withheld. However, if you have too little withheld, you may owe tax when you file your return and may have to make estimated tax payments.

If you have a defined benefit plan with a cash balance feature, your account is credited each year with an interest credit (either a fixed-rate or variable rate linked to the one-year treasury bill rate) and a pay credit that equals 5 percent of your earnings. The total value of your account is then projected to be your lifetime benefit amount.

Social insurance contributions are deducted from employees’ wages and paid into the Social Insurance Fund. The current account of the fund is managed by the Minister for Social Protection, while the investment account is managed by the Minister for Finance. Since 2013, people paying modified rate PRSI (mainly civil and public servants recruited before April 1995) have been liable for a new charge of 4% on all earned self-employed income and unearned income that comes under PAYE.






Leave a Reply

Your email address will not be published. Required fields are marked *