1. Retirement benefits – provide a lifetime monthly income for retired workers who worked and paid Social Security taxes at least 40 quarters (ten years). The earliest you can apply for benefits is age 62, but the longer you wait, the larger your monthly payment.
2. Survivor benefits – provide monthly income to survivors of qualifying workers. A surviving spouse may receive benefits for his or her lifetime once reaching retirement age. Children and the surviving spouse caring for them receive monthly benefits until the children reach age 18 or graduate from high school, whichever is later.
3. Disability benefits – provide lifetime monthly income to workers who are disabled. Social Security has much stricter requirements than private insurance companies for a worker to be considered disabled. To receive Social Security Disability, your disability has to be long-term or expected to result in death. Not only can you not be able to do your previous work, but Social Security must also decide you cannot do any other work. Partial and short-term disabilities do not qualify.
Medicare, a health insurance program for older Americans, is not part of Social Security. However, the taxes we pay to fund part of Medicare are lumped with Social Security taxes. Social Security and Medicare taxes combined are called “payroll taxes” and may be labeled “FICA” on your paycheck stub. FICA stands for Federal Insurance Contributions Act.
Payroll taxes are comprised of three taxes. The money collected can be used only for their intended purpose and not diverted to the general budget.
1. Social Security Retirement and Survivors tax: Workers pay 5.3 percent of their earned income up to a maximum of $118,500, the 2015 limit. Employers pay another 5.3 percent on the employee’s pay up to the same dollar limit. Self-employed people pay both the employee and employer portions, or 10.6 percent.
2. Social Security Disability tax: Workers pay 0.9 percent on earned income up to $118,500 with their employers paying another 0.9. Self-employed people pay 1.8 percent.
3. Medicare tax: Employees pay 1.45 percent on all of their earnings, and their employers pay another 1.45 percent. The self-employed pay the full amount, or 2.9 percent. Medicare tax does not have an income limit. In fact, if you earn $200,000 or more ($250,000 for married couples filing jointly) you pay an additional 0.9 percent in Medicare tax. Medicare has several components to its insurance program. Payroll taxes are targeted for one part, Hospital Insurance. The rest of Medicare is funded by premiums paid by its enrollees and general tax dollars.
Here are payroll taxes summarized:
|Tax||Employee Portion||Employer Portion||Total (also amount paid by self-employed)|
|Social Security Retirement/Survivors up to $118,500 in earned income (2015 limit)||5.3%||5.3%||10.6%|
|Social Security Disability up to $118,500 in earned income (2015 limit)||0.9%||0.9%||1.8%|
|Medicare Hospital Insurance (no income limit)||1.45%||1.45%||2.9%|
Nothing about Social Security is uncomplicated, including how we pay for it, who qualifies for benefits and when, and the formulas used to calculate the dollar amount of benefits at different ages and in difference situations. It is best to contact your local Social Security office with any questions and to address your specific situation. To find your local office, visit the Social Security Office Locator at www.ssa.gov.
This article is the last in a series of three on Understanding Social Security. This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice. Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.
Social Security is quite complex with many rules and formulas determining who is eligible for benefits and when. If you have questions on your situation, please contact your local Social Security office or visit www.ssa.gov. If you would like to read an in-depth report on Social Security, how it works, and thoughts on its future, check out “How Social Security Works in 2014” by Romina Boccia at www.heritage.org.
Blog text © 2015 by Money Care, LLC