Myths and Facts About Social Security
The Social Security Administration helps dispel many myths about Social Security and provide the facts you need.
Social Security, introduced more than 80 years ago, has become a ubiquitous part of our government and society. Most workers pay into it, and are then entitled to the benefits that come along with it when their time comes. Because the system affects so many people, and at its very core is a matter of politics, it's no surprise that there is plenty of misinformation floating around about it (especially in the era of "fake news" and "alternative facts").
Luckily, the Social Security Administration (the federal government agency that administers the benefits) has plenty of documentation out there dispelling the myths that have emerged over the years.1 Below, we look at a few of the myths and their corresponding facts.
One common myth about the history of Social Security is that when President Franklin Delano Roosevelt first introduced it, it was completely voluntary. Many people believe that the former president promised as much, but this is not true, according to the Social Security Administration (SSA).
The fact is that like any other tax, the FICA payroll tax (Federal Insurance Contributions Act tax, which funds both Social Security and Medicare) has never been voluntary. The money comes out of your paycheck if you're an employee, and you are required to pay it. While it's handled with a different form, self-employed people (business owners, contractors, and freelancers) must also pay the tax.
The history of the tax isn't quite as simple, however. What most likely led to the myth about it being voluntary is that when the Social Security program was first introduced, many (close to half) of the jobs in the United States economy weren't covered by it. So, it was voluntary only in the sense that you could have worked a job that was covered or worked a job that was not. If you worked in the job that was not covered, you would not have received future benefits, which you would have otherwise been entitled to. Participation was always mandatory if the job was covered by the law (other than certain exceptions involving government workers).
Deductible from Income for Tax Purposes
Another common myth about Social Security is that President Roosevelt said money that participants put into the program would be deductible from their income for tax purposes each year. The SSA has also declared this to be false. A law implemented in 1935 specifically forbade the concept. The administration shares the text of the law on its website.2 The relevant section says:
"For the purposes of the income tax imposed by Title I of the Revenue Act of 1934 or by any Act of Congress in substitution therefor, the tax imposed by section 801 shall not be allowed as a deduction to the taxpayer in computing his net income for the year in which such tax is deducted from his wages."
Social Security and Disability
Some people believe that most people collecting Social Security Disability benefits aren't in fact really disabled. This is a very common line of thinking, and the SSA has also declared this to be a myth. The fact, per the SSA, is that its requirements for collecting these benefits are so strict that beneficiaries are "among the most severely impaired people in the country."3
Based on the Past Seven Years
Finally, one more popular myth about Social Security benefits is that they are based on your last seven years of earnings. This is not accurate.
The SSA says in an infographic on its website: "We base Social Security benefits on your lifetime earnings. We adjust or "index" your actual earnings to account for changes in average wages since the year the earnings were received. Then, Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most. We apply a formula to these earnings and arrive at your basic benefit, or "primary insurance amount."3
Of course, there are many other myths out there about Social Security, so if you want to be sure you’re getting accurate information, it’s always best to go to the source, the Social Security Administration website.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.