Social Security

Understand all your rights under this vast benefits program.

Although most Americans think of Social Security in regard to the retirement benefits it provides, in actuality Social Security is an entire system of insurance benefits. In addition to retirement, Social Security also provides disability and health benefits to those who are eligible, as well as providing survivor benefits to the dependents of a worker who dies. In a recent year, 41 million individuals received some kind of Social Security benefits. Of these, 29 million were retired workers and more than seven million were the survivors of a deceased worker, while nearly five million were recipients of disability benefits.

Although many people believe that workers receiving benefits from Social Security are merely being repaid out of their earlier contributions, this belief is a mistaken one. In fact, these benefits are financed by the Social Security taxes paid by those who are currently in the work force.

Currently, employees are taxed at the rate of 6.2 percent of their earnings for their contributions to Social Security's Old Age, Survivors, and Disability Insurance (OASDI). This tax is imposed on earnings up to a maximum amount set by law, and adjusted every year for inflation. In 1999, the maximum amount this tax was imposed on was $72,600.

In addition, workers are taxed at the rate of 1.45 percent for Medicare, the health insurance coverage provided by the federal government. In 1993, the maximum amount of earnings this tax applied to was $135,000; however, with the passage of President Clinton's budget in 1994, this maximum was removed, and now all earnings are subject to this tax.

If you work for another, your taxes are matched by your employer, but if you are self-employed you pay double the percentages stated above. However, you are also entitled to take a deduction of some of this amount on your tax return, so the burden on the self-employed is lessened to some extent.

Just about every worker in the U.S. is covered by Social Security, although there are a few exceptions. For example, railroad employees are covered under the Railroad Retirement System, and some federal workers hired before 1984 are covered by a separate Civil Service Retirement System. Some state and local government workers are covered by their own retirement programs, and employees who don't earn enough in wages may not be covered, although they may be eligible for benefits on a spouse's record.