Chapter 8: Social Security

Those not covered for Social Security include:

-Most federal employees hired before 1984 that are covered by Civil Service Retirement or another similar pension plan. -Approximately 25% of state and local government employees who are covered by a state pension program and who have elected not to participate under the Social Security program (each state and local government unit decides whether to participate.) -Railroad workers who are covered under a separate federal program, the Railroad Retirement System.

Taxation of Social Security Benefits

-Social Security benefits are subject to federal income tax if the beneficiary files an individual tax return and his annual income is greater than $25,000. -Joint filers will pay federal income tax on their Social Security benefits if their income is greater than $32,000.

Child's Benefit

A child under age 18 (or disabled before age 22) whose parent is a deceased worker may receive a benefit equal to 50% of the worker's PIA until the child turns 18, 19 if still in high school. If the child marries before 18, the benefit terminates.

AIDE

Average Indexed Monthly Earnings Average of the worker's lifetime earnings that were subject to the FICA tax. Additional and critical step of weighting a worker's past earnings to take inflation into account and bring up to current economic standards. After 1979

AMW

Average Monthly Wage How they calculated benefits before 1979.

Amount of Benefits

Based on the worker's earnings over the years. There is a directly relationship between the amount of FICA taxes paid and the level of benefits earned. Workers who paid maximum will receive higher benefits than those who pay less than that. The more the person earns, more they pay. Used to be based on AMW, now based on AIME

Quarter of Coverage

Basic unit for determining whether a worker is insured under SSA..

OASDI (Social Security)

Old-Age, Survivors, and Disability Insurance To pay for these programs, the government imposes a tax on earned income that must be withheld by your employer. The OASDI deduction on your paycheck shows how much was withheld.

Survivor Spouse's Benefit

The eligible surviving spouse of a fully insured deceased worker is entitled, at age 65, to a monthly life income equal to the worker's PIA at death. Or, if the worker wishes to receive these benefits early, the surviving spouse can elect reduced benefits, starting as early as age 60.

Spouse's Retirement Benefit

The spouse of any worker eligible for retirement benefits is entitled to an old age income at the spouse's FRA, or reduced benefit at age 62. At FRA, the spouse's benefit is 50% of the retired worker's PIA. At age 62, a spouse may receive permanently reduced benefits. If there is a dependent child under age 16, or disabled before age 22, the spouse is eligible to receive the 50% spousal benefit, regardless of the spouse's age.

Eligibility (Versus Coverage)

-Eligibility for Social Security is based on a person's insured status: fully insured OR currently insured. If fully insured, worker entitled to full retirement and survivor benefits and their family. A currently insured status qualifies a worker for limited range of survivor benefits.

Retirement benefits

-When Social Security retirement benefits are only available to covered workers who are fully insured upon retirement. -Benefits are paid monthly. -If a covered worker retires at the normal retirement age, he or she will receive 100% of the PIA. -However, if a covered worker retires early at the age of 62, the maximum social security benefits is 80% of the PIA. -This reduction remains all through retirement. -Retirement benefits pay covered retired workers, their spouses and other eligible dependents a monthly income. -Age is 65 if born before 1938. -Slightly greater benefits if retirement delayed and born after 1959.

Social Security System

-provides a basic floor of protection to all working Americans against the financial problems brought on by death, disability, and aging. -Does not fulfill all needs. -Enacted in 1935 by Pres. Roosevelt. and administered at the federal level by the Social Security Administration. -An estimated 58 million Americans are receiving these benefits. -Established during the Great Depression to assist the masses of people who could not afford to sustain their way of life because of unemployment, disability, illness, old age, or death. -In addition to covered workers, SS also provides for spouses, dependents, and in some cases dependent parents of covered workers. Person must work. -Also provides health care through Medicare.

Parents' Benefits

Beginning at age 62, each parent of a deceased fully insured worker is eligible to receive a monthly benefit if the parent was at least one-half supported by the worker at the time of death. When two parents are eligible, each receives 75% of the worker's PIA. If only one parent is eligible, the parent received 82.5% of the workers' PIA.

Death Benefits

SSA provides death benefits to a surviving spouse, dependent children, and dependent parents. A.k.a. Survivor's Benefits. Also available to children under age 18, children under age 19 who are full time students, children at any age if disabled before age 22 and remain disabled. A spouse of any age who is caring for children under age 16. A social security benefit of 75% of the primary insurance amount is given to an underage child of a deceased worker. These benefits include a $255 lump sum benefit

Fully Insured

A status of complete eligibility for the full range of Social Security benefits: death benefits, retirement benefits, disability benefits, and Medicare benefits. A person must have contributed 40 quarters of employment/10 years of work (or whatever the limit is based on their age) to be fully insured. Insured and their family.

Currently Insured

Under Social Security, a status of limited eligibility that provides only death benefits. Must have earned 6 credits during the 13-quarter period, ending with the quarter in which the worker died.

Credits

-Determining factor between being classified as fully insured or currently insured. -Once a person becomes fully insured, death benefits are extended to his or her family. In other words, the family becomes eligible for survivorship benefits. -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.

Primary Insurance Amount (PIA)

-Used to establish the benefit. -The benefit (before rounding down to next lower whole dollar) a person would receive if she or he elects to begin receiving retirement benefits at his/her normal retirement age. -At this age, the benefit is neither reduced for early retirement nor increased for delayed retirement. -Average monthly earnings derived by AIME are applied to a formula to yield the PIA. -If early retirement, benefits will be 80% of his PIA and remain lower for the rest of life.

Social Security Act of 1935

-provides for the general welfare of 65+ US citizens. -enacted by the Senate and House of Reps of the US -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 -Law changed in 1939 to add survivors' benefits and benefits for the retiree's spouse and children. -Disability benefits were added in 1956. -Pay now in exchange for benefits later.

Blackout Period

A period following the death of a family breadwinner during which no social security benefits are available to the surviving spouse. When youngest turns 16 years old or immediately if no children. Ends when surviving spouse turns at least 60 years old.

Lump-Sum Death Benefit

SSA provides a one time lump sum death benefit to a deceased worker's surviving spouse or children. The amount of this benefit is equal to three times the worker's PIA, up to a maximum of $255. This benefit is designed to help defray funeral expenses. Only surviving spouses or eligible children may receive this benefit.

Taxable Wage Base

The maximum amount of earnings upon which FICA taxes must be paid. Increasing. Indexed each year.

Earnings Test

Under prior law, people under age 70 who were receiving Social Security retirement benefits but continued to work could earn only so much each year without their benefits being reduced. However, this law repealed in 2000. Under CURRENT rules, when a person reaches full retirement age, that person can continue working and receive SS benefits without any limit on earnings. However, if a person is under the full retirement age when he or she begins receiving Social Security benefits and continues to work, the amount of benefits will be reduced.

Disability Benefit Qualifications

When Social Security uses both medical disability criteria and non-medical criteria to determine whether you qualify for social security disability. First, you must prove that you are medically disabled.

FICA taxes (Federal Insurance Contributions Act)

-Used to fund the SS program if a person didn't contribute through payroll program. -Payroll tax applied to a certain limit, called the taxable wage base. A portion of these taxes is used to fund OASDI benefits. -Remaining goes to Medicare. -Employers pay equal amount on behalf of each employee. -Self employed workers pay a higher rate. -Wage base increasing, more taxes apply. NO CAP ON EARNINGS FOR MEDICARE PORTION.

Coverage (Versus Eligibility)

Being covered by Social Security means that a worker is actively participating in the program through FICA tax contributions, but he or she may or may not be eligible for benefits.

Disability Benefits

only available to covered workers who are fully insured, as defined by Social Security at the time of disability. Unable to engage in any occupation. A person may first become eligible for disability benefits under SS after having been disabled for 5 months. Only available before 65. Does not pay partial or short term disability. last 12 months or end in death, total disability. Benefits include monthly payments to disabled worker, spousal benefits and child's benefits. No reduction in benefits if before age 65. disability benefits reduced to account for retirement benefits after age 63

Maximum Survivor Benefits

Social Security has placed limits on the total amount of survivor benefits that any one family may receive. This limit is known as the maximum family benefit, and it varies according to the PIA. If the sum of the individual benefits paid to members of one family exceeds this maximum limit, benefits will be reduced proportionately to bring the total within the limit.