105-8 Social Security Flashcards
Social Security aka
old age, survivors, and disability insurance (OASDI) program
Superannuation
running out of money during the participant’s lifetime
Social Security Funded Through
Payroll taxes paid by participant and participant’s employer
Social Security taxes apply to only the first $132,900 in wages in 2019, but the Medicare tax is applied to all earned income with no limit or cap.
Federal Insurance Contributions Act (FICA) tax
- 65% paid by employer
- 65% paid by employee
For a total of 15.3%
Self-employed individual must pay both the employer and employee portions of the FICA tax, known as the self-employment (SE) tax
Additional Medicare Tax
0.9% Additional Medicare Tax applies to taxpayers whose compensation exceeds stated threshold amounts
Major exceptions to coverage in the Social Security program
- Certain federal civil service workers
- approximately 25% of state and local gov employees
- railroad workers covered under the federal Railroad Retirement Act
- some other exceptions
Fully insured
Fully insured coverage is necessary to qualify for most benefits and consists of 40 credits of coverage (effectively, 10 working years under the system) or 1 credit for each yr over age 21
Generally eligible for following benefits:
- retirement benefits
- spousal retirement benefits
- surviving spouse benefit for widow(er) age 60 or older
- surviving spouse benefit caring for a dependent child
- dependent benefit
- dependent parent benefit
- lump-sum death benefit of $255
Currently Insured
Currently insured coverage is a more limited form of coverage and eligibility for benefits than fully insured status
Achieved if the worker has earned 6 credits of coverage during the 13 calendar quarters ending w/ the calendar quarter in which the individual died, most recently became eligible for disability benefits, or became entitled to retirement insurance benefits
Generally eligible for only the following benefits:
-surviving spouse caring for a dependent child
-dependent benefit
-lump-sum death benefit of $255
Primary Insurance Amount (PIA)
all benefits paid under the social security program are based on an amount known as the worker’s PIA
Average Indexed Monthly Earnings (AIME)
Based on the worker’s lifetime earnings history
Worker’s PIA is calculated using this
Full Retirement Age (FRA)
67
But 65 for workers born before 1938
At this age, eligible to receive Primary Insurance Amount (PIA)
Types of benefits available under social security
- Retirement
- Survivor
- Disability: definition of fully insured differs slightly when considering disability benefits
Maximum Family Benefit
There is a limit on the total amount of benefits that members of 1 family may receive based on the worker’s employment record
Does not apply if both the husband and wife receive a retirement benefit based only on their own respective employment records
Taxation of Social Security Benefits
Social Security retirement beneficiaries w/ significant total incomes may be required to include up to 85% of their SS benefits is income for federal income tax purposes
If the 1st threshold is exceeded in any taxable year, generally 50% of the amount by which the SS benefits exceed the threshold is subject to income tax
If the 2nd threshold is exceeded in any taxable yr, generally 85% of the amount by which the Social Security benefits exceed the 2nd threshold is subject to income tax
Windfall Elimination Provision & Government Pension Offset
May reduce a worker’s benefits from Social Security
- WEP: may apply to a worker who qualifies for a SS retirement or disability benefit but who also earns a pension from an employer who dos not withhold SS taxes
- GPO: may apply to SS benefits for spouses, widows, or widowers
