The Federal Insurance Contribution Act (FICA) mandates that money needs to be collected from employers and employees and held in a special Social Security Trust Fund. It is necessary for every employee to pay a certain percentage of their wages (usually 12.5%) to go to this fund and that same amount of money is also required from the employer. This scheme has been in operation in the United States since 1935 when it was introduced by President Franklin D. Roosevelt as part of the Social Securities Act.
How is the Money from FICA Used?
The way that the money in the social security trust fund is used has changed a bit over the years. When it was first introduced it was only meant to offer assistance to those who were under 65 years of age and worked in certain industries. Soon after its introduction it was amended to also help orphans, those over 65, and widows. When it first began there were many professions that were exempt from the need to pay into the scheme; consequently they weren’t allowed to claim from it either. Now most professions are expected to contribute to the social security trust fund.
This fund is managed by the Department of Treasury. This department invests the money in US government backed securities. This basically means that the government is borrowing from the fund; in effect borrowing from itself. Any money borrowed is later paid back in the same way as repayment on other US government bonds. The money available in the Social Security Trust Fund can then be used to finance all types of social projects and assist the needy.
The money from FICA is now used in many ways, but only those who have paid into the scheme can benefit from it. This money is used in many programs such as Medicare and Social Security; this provides and income to those who might otherwise struggle with poverty such as the disabled or people who have retired. Medicare provides free insurance to those people who are over 65 years of age.
When it comes to claiming from the Social Security Trust Fund there are different regulations in regards to age. Those who are younger than 65 years of age, but older than 62, can receive reduced benefits. Anyone who was born after 1960 won’t be able to claim full benefits until they are 67 years of age. Those born between 1954 and 1960 are able to claim at age 66 and those who were born prior to 1938 are entitled to full benefits at age 65.
The FICA Safety Net
The money available in the Social Security Trust Fund is considered a safety net — it stops a lot of people from falling to far into poverty. It is also something that is frequently debated and the money available in the fund is dwindling. There is no doubt that a lot of people would find life difficult if this fund wasn’t available. It is hard to predict what will happen with this fund in the future.