Chicago, IL – A senior citizen collecting full Social Security benefits while working full time is puzzled by the continued deductions from their paycheck by the Federal Government. Despite seeking clarification from Social Security experts, the individual remains unsatisfied with the response that “it’s the law.” With $4,400 deducted in 2023, the individual feels the amount taken from their pay is not proportionate to the COLA increase received. An explanation for why the government taxes individuals receiving full benefits remains elusive.
The roots of this ongoing taxation can be traced back to 1935 when President Roosevelt’s panel drafted the blueprint for America’s Social Security program. The financing mechanism set forth by the panel required workers and their employers to contribute to Social Security through payroll taxes. Originally, only certain employees and their employers were obligated to contribute 1% of the employee’s first $3000 of earnings. Over time, this requirement expanded to encompass almost all workers.
Since 1937, the payroll taxes collected from current workers have been used to fund benefits for those already receiving Social Security. This “pay as you go” system ensures that income from workers supports payments to beneficiaries. Any surplus funds collected are invested in government bonds for future use. Despite the financial evolution of the program, the fundamental principle remains intact – contributions from workers sustain benefit payments for recipients.
While a previous rule mandated the cessation of benefits for individuals working while collecting Social Security, this restriction no longer applies. Those receiving benefits can now work while continuing to receive payments, albeit with the obligation to contribute to the program through payroll taxes. This financial arrangement underscores the collaborative nature of Social Security financing, with workers’ contributions facilitating benefits for current recipients.
The complexity of Social Security funding mechanisms underscores the necessity for continued contributions from individuals collecting benefits. By maintaining payroll tax obligations, beneficiaries support the sustainability of the program, ensuring that future generations will also benefit from the system. The interdependence between current workers and beneficiaries underscores the collective responsibility in upholding the Social Security program for all Americans.