Dawn Nuschler Specialist in Income Security
Gary Sidor Information Research Specialist
Social Security program pays benefits to retired or disabled workers and their
family members, and to family members of deceased workers. Program income
and outgo are accounted for in two separate trust funds authorized under
Title II of the Social Security Act: the Federal Old-Age and Survivors
Insurance (OASI) trust fund and the Federal Disability Insurance (DI) trust
fund. This report refers to the two trust funds as an aggregate Social Security
trust fund and discusses the operations of the OASI and DI trust funds on
a combined basis.
Social Security is financed by payroll taxes paid by covered workers and their
employers, federal income taxes paid by some beneficiaries on a portion of
their benefits, and interest income from the Social Security trust fund
investments. Social Security tax revenues are invested in federal government
securities (special issues) held by the trust fund, and these federal
government securities earn interest. The revenues exchanged for the
federal government securities are deposited into the general fund of the
U.S. Treasury and are indistinguishable from revenues in the general fund
that come from other sources. Because the assets held by the trust fund are federal
government securities, the trust fund balance represents the amount of money
owed to the Social Security trust fund by the general fund of the U.S.
Treasury. Funds needed to pay Social Security benefits and administrative
expenses come from the redemption or sale of federal government securities
held by the trust fund.
The Social Security trust fund represents funds dedicated to pay current and
future Social Security benefits. However, it is useful to view the trust
fund in two ways: (1) as an internal federal accounting concept, and (2)
as the accumulated holdings of the Social Security program.
For internal accounting purposes, certain accounts within the U.S. Treasury are
designated by law as trust funds to track revenues (and expenditures)
dedicated for specific purposes. There are a number of trust funds in the
U.S. Treasury, including those for Social Security, Medicare, unemployment
compensation, and federal employee retirement.
By law, Social Security tax revenues must be invested in U.S. government
obligations (debt instruments of the U.S. government). The accumulated
holdings of U.S. government obligations are often viewed as being similar
to assets held by any other trust on behalf of the beneficiaries. However,
the holdings of the Social Security trust fund differ from those of private
trusts because (1) the types of investments the trust fund may hold are
limited, and (2) the U.S. government is both the buyer and seller of the
This report covers the basics of how the Social Security program is financed
and how the Social Security trust fund works. It will be updated annually
to reflect current projections of the financial status of the Social
Security trust fund.
Date of Report: January 11, 2013
Number of Pages: 20 Order Number: RL33028 Price: $29.95
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