How is Social Security financed?

Social Security is financed through a dedicated payroll tax. Employers and employees each pay 6.2 percent of wages up to the taxable maximum of $106,800 (in 2009), while the self-employed pay 12.4 percent.

In 2008, $672 billion (83.5 percent) of total OASI and DI income came from payroll taxes. The remainder was provided by interest earnings ($116 billion or 14.4 percent) and revenue from taxation of OASDI benefits ($17 billion or 2.1 percent).

The payroll tax rates are set by law and for OASI and DI apply to earnings up to a certain amount. This amount, called the earnings base, rises as average wages increase.