8.1 Purpose of Social Security
The Social Security Act of 1935 (August 14 - originally known as the Economic Security Act) was created to provide for the general welfare of United States citizens who are 65 years of age and older. The Act was enacted by the Senate and House of Representatives of the United States to enable individual states to make more adequate provisions to furnish financial assistance to the aged, blind, dependent and crippled children, maternal and child welfare, public health, and to establish more adequate provisions for the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue; and to provide a basic floor of protection to all working Americans against the financial problems brought on by death, disability, and aging.
Social Security (SS) was originally intended to be a retirement program for the primary worker. In 1939 the law was changed to add survivors' benefits and benefits for the retiree's spouse and children. In 1956 disability benefits were added.
It is important to note that even though SS takes responsibility for the welfare of the needy and disabled, don't confuse it with the typical welfare program. Social Security is an entitlement program, not a welfare program. SS is based on a "pay-as-you-go" system, meaning you pay now in exchange for benefits later.
Social Security's purpose is to provide for the general welfare of those U.S. citizens who are 65 years of age and older.
The Social Security program is funded through FICA taxes (Federal Insurance Contributions Act); so if a person hasn't contributed through their payroll program, they are not eligible for SS benefits. In fact, a person must have contributed for 40 quarters of employment to be fully insured. (The differences between fully insured and currently insured are explained in a later section.)
Four credits is the maximum any one person can earn in a given year; therefore, for the 40-quarter rule to apply, an individual must have been employed and have paid FICA taxes for 10 years at least. This payroll tax is applied to employees' incomes up to a certain limit, called the taxable wage base.
FICA taxes are applied to employees' incomes up to certain limits, called the taxable wage base. A portion of the FICA tax is allocated to OASDI (Old Age, Survivor and Disability) benefits; the other portion is allocated to Medicare benefits. In 2012, the OASDI taxable wage base was capped at $110,100 ($106,800 in 2011). There is no CAP on earnings for the Medicare portion.
FICA tax is a combination tax - 6.20% goes to OASDI and 1.45% goes to Medicare for a total of 7.65%. Self-employed individuals must make a higher contribution. Because self-employed individuals are considered both employers and employees, the tax rate is 15.3% (2012, same as 2011).
