Social Security Administration

What Is the Social Security Administration?

Established in 1935 during the Great Depression, the Social Security Administration (SSA) is the US federal agency responsible for issuing Social Security numbers (SSNs). It also enrolls eligible participants into Medicare and oversees retirement, survivor, disability, and supplemental income programs.

Old-Age, Survivors, and Disability Insurance (OASDI)

Old-Age, Survivors, and Disability Insurance (OASDI) is the name of the primary program run by the SSA. Largely funded by taxes, OASDI contributes to the wellbeing of millions of Americans each year through the following benefits:

• Social Security retirement: This is the earned income employees receive once they reduce their working hours and eventually retire. To be eligible, you must be 62 years old and have paid into the program for at least 10 years.
• Social Security Disability Insurance (SSDI): Another earned benefit, SSDI supports people with disabilities or qualifying medical conditions. Eligibility rules state that the beneficiary or a family member (spouse/parent) must have contributed to the program.
• Social Security survivors benefits: These benefits go toward widowers, widows, and dependents of eligible workers who’ve paid into the program and passed away.
• Supplemental Security Income (SSI): This entitlement program supports adults age 65 and older, as well as adults and children with disabilities or blindness, who have limited income and resources.

Medicare (Hospital Insurance)

Medicare is a health insurance program for older individuals age 65 and older, as well as people with disabilities and serious medical conditions. The SSA processes Medicare applications and provides general information, but the Centers for Medicare & Medicaid Services (CMS) runs the program.

Who Pays for Social Security and Medicare?

Payroll taxes make up the majority of the funds in the Social Security system. This is mandated by the Federal Insurance Contributions Act (FICA) and Self-Employment Contributions Act (SECA). Additional funding sources for these programs include:

• Reimbursements from the US Treasury’s General Fund
• Income taxes on Social Security benefits
• Interest earned by government bonds within the trust funds

A portion of every tax dollar collected goes into a trust fund, which is where the benefits for retirees and surviving spouses and children come from. The remaining portion goes into a separate trust fund that pays benefits to people with disabilities and their families. Collectively, these funds cover the costs to run these programs.

SSI benefits are financed entirely by the general funds in the US Treasury—FICA and SECA taxes don’t pay into this program. The General Fund is built by personal income taxes, corporate taxes, and other levies.

How to Calculate Social Security Taxes

Social Security taxes for OASDI are calculated based on earnings up to a specified amount (the taxable maximum), which is reassessed each year. For instance, the taxable maximum for 2024 is $168,600. Each contributor pays into Social Security as follows:

• Employees: 6.2%
• Employers: 6.2%
• Self-employed workers: 12.4%

How to Calculate Medicare Taxes

Medicare taxes are collected similarly. Employers and employees share the responsibility, and self-employed workers submit the full amount. Each contributor pays into Medicare as follows:

• Employees: 1.45%
• Employers: 1.45%
• Self-employed workers: 2.9%

Workers at higher income thresholds pay an additional 0.9% in Medicare taxes.

Will Social Security Run Out?

As of 2023, the long-term financial outlook indicates the Social Security system isn’t sustainable indefinitely. Current estimates reported by the SSA Board of Trustees suggest that OASI and DI reserves will be depleted by 2034. This projection is based on several demographic factors, such as:

• Number of people entering retirement
• Longer life expectancies
• Lower birth rates

Once the surplus is gone, only payroll taxes and other sources will fund the program. This means the system will only be able to pay out as much as it takes in each year. If future policies and amendments increase funding, the Social Security program can run as it does today.

How Are SSNs Used?

A person’s SSN is their link to the SSA. The agency uses this nine-digit ID to track Social Security earnings during their career and assign benefits when they’re eligible to receive them. This number is also used for personal identification purposes. It’s routine for government agencies, private businesses, financial institutions, and employers to ask for a person’s SSN to do any of the following:

• Confirm US citizenship
• Run background checks
• Verify identification
• Complete IRS Form W-2

For example, a Social Security card is commonly necessary for someone to be approved for a mortgage, get a passport, or apply for public assistance. And thanks to the online support available from the SSA, HR can take extra care when hiring new employees.

Social Security Administration: Human Resources Support

Through the SSA, human resources gain helpful information to pass on to employees, assisting them in planning for retirement and other major life events. Today’s employers and HR professionals also use online tools from the government to process new hires securely and efficiently, such as:

Social Security Number Verification System (SSNVS)

The Social Security Number Verification System (SSNVS) lets you confirm a person’s identification. Using this online tool, hiring managers can compare the names and SSNs of their employees against the most current Social Security records. This step in the hiring process is vital for preventing identity theft and ensuring accurate recordkeeping.

E-Verify

E-Verify is the online system employers use to process new hires. Jointly administered by the SSA and US Citizenship and Immigration Services (USCIS), this web-based tool makes it easy to confirm employees are eligible to work in the US using their Form I-9.