FICA is the abbreviation for the Federal Insurance Contributions Act. By this act it is mandated that an employer withhold a set percentage of an employee’s salary each pay period. It is also required by the FICA that the employer have to match the employee’s amount and contribute the money to a government account known as the Social Security Trust Fund. By this fund retirement income is provided, as well as it also provides disability insurance, Medicare, and benefits for survivors.
Social Security Act of 1935
FICA was the result of the Social Security Act of 1935, and it has been proposed by President Franklin D. Roosevelt. In 1937, the program began collecting taxes and paying benefits. In 1939, few amendments were made in FICA to include widows and orphans of working spouses, as well as elderly people who had not paid into the system.
Who will have its Benefits?
Originally, Social Security benefits were available only to those people who were under 65 and who had worked in those departments that was considered commerce and industry. Government employees, medical personnel, lawyers, and agricultural workers were all exempt from FICA, and due to the reason that they were not required to pay into the fund, so they were not allowed to collect monies from it. Now these restrictions have been lifted, and although there are still categories of workers who can chose that whether they have to pay into FICA or not, no one is expressly excluded from participation.
How the Government Utilize these Funds?
The Social Security Trust Fund, that has been established in 1939. This fund is responsible for collecting the money that is raised through employer/employee contributions required by FICA. It is the responsibility of the Department of Treasury to manage these funds and to invest this money in securities backed by the US government. The government is in effect loaning the money to itself, and then it is used by the government to finance other projects. When the bonds come due the money is repaid.
Eligibility for Having Benefits
Only those people are eligible to to receive benefits from the fund who have paid into Social Security through FICA. Currently, reduced benefits can be collected by a person at age 62. By the individual’s birth year distribution of full benefits is determined. People who were born before 1938 were able to collect full benefits at 65. For those who were born between the year 1938 and 1943, the age will be increasing at a rate of two months per year up to the age of 66 for those born in 1943. For everyone who was born between 1943 and 1954, retirement age remains 66, and then it increases again, up to 67 for those born in 1960 and after.
Are they Taxable?
Originally, Social Security benefits were not taxable. However, in 1983, amendments were passed by the Congress to the Social Security Act that would consider 50% of benefits to be taxable income for beneficiaries with a total income that exceeded an established limit. In 1993,this amount was increased to 85%.
