Just the Basics: Payroll Taxes

As Tax Day approaches, we’ve updated several backgrounders that explain how the federal government and states collect and spend tax dollars.  As policymakers and citizens weigh key decisions on how best to shape our future federal government, it’s helpful to examine where the dollars that comprise the budget come from and where they go.

The next in our series of revised “Policy Basics” backgrounders explains federal payroll taxes.

The federal government levies payroll taxes primarily on wages and self-employment income and uses most of the revenue to fund Social Security, Medicare, and other social insurance benefits.  In fiscal year 2013, federal payroll taxes generated $947 billion, or 34 percent of all federal revenues.  (When the Social Security tax was introduced in 1937, it accounted for 11 percent of federal revenues.)

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Find out more about who pays payroll taxes and what they fund in our full paper.