Does Federal Income Tax Include Social Security?

by Cheryl Withrow ; Updated July 27, 2017
Federal income taxes and Social Security taxes are different types of payroll deductions.

Americans pay many taxes. Taxes are everywhere, and it has been said there are only two certain things in life – death and taxes. With taxes assessed on property, motor vehicles, everyday purchases and income, the saying rings true for many citizens. Most wage earners also contribute to the national social insurance system, better known as Social Security or FICA. Social Security taxes remain apart from and are not included in federal income tax deductions on a wage earner’s paycheck.

Inception

The Social Security Act of 1935 established the Title II Program, which set up taxation guidelines for collecting taxes geared toward a government-run national retirement system. Actual deductions began in 1937. In 1939, amendments that took the tax out of the Social Security Act and placed it in the Internal Revenue Service Tax Code were signed into law. The IRS collects these taxes under the authority of the Federal Insurance Contributions Act, part of the 1939 amendments. Social Security turned 75 in 2010, and the average monthly benefit checks in at $1,050.

Benefits

With funds from taxes collected beginning in 1937, Social Security paid the first monthly benefit to Ida Mae Fuller. Her check was cut for $22.40. In 1944, widow Mary Thompson was flagged at the 1 millionth beneficiary of Social Security. Women can retire at age 62, with reduced benefits, as a result of 1956 updates to the system. In 1961, men get the same early-retirement option. The Retirement Earnings Test, which was in place for many years, was eliminated for seniors who receive benefits at or above normal retirement age. This change enabled seniors to continue working and receive full benefits, instead of reducing them based on earnings, as was the case in the past. In 2008, Kathleen Casey-Kirschling, generally recognized as the first baby boomer, received her first Social Security benefit check.

COLA

Social Security updated benefit checks with a Cost Of Living Adjustment for the first time in 1950. COLA was conceived as a method of keeping Social Security benefits on an even keel with inflation. In 1972 COLA became permanent, and Social Security recipients saw an across-the-board 20 percent increase in benefits.

Other Programs

In 1956 legislation was enacted that allowed disabled workers aged 50 to 64 to qualify for benefits. Medicare and Medicaid were established in 1965, with the Social Security Administration responsible for overseeing Medicare, and agencies in the Department of Health, Education and Welfare, under the auspices of the individual states, responsible for administering Medicaid. Supplemental Security Income Program became part of the Social Security system in 1972. SSI provides income for the nonworking blind, disabled and elderly citizens.

Solvency

Legislation enacted in 1977 was aimed at stabilizing Social Security’s finances. The government raised the payroll tax percentage and slightly downgraded benefits. In 1983 Congress, in another effort to correct Social Security’s financial problems, delayed the COLA increase for six months, increased payroll tax rates, added federal employers to the Social Security tax rolls, started taxing a portion of FICA benefits and gradually increased the upper-end retirement age from 65 to 67. Still fighting solvency issues. Congress increased the portion of Social Security benefits subject to taxes in 1993.

About the Author

Cheryl Withrow is a writer in Michigan’s untamed Upper Peninsula. Following a teaching career she served alternately as editor of the "Washington County News" and the "Geneva County Reaper," and as associate editor of "Bay Life" magazine. Withrow holds a Bachelor of Science in business with a major in accountancy from Wright State University and a Bachelor of Arts in English from Ohio University.

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