One reason people avoid using or claiming their disability benefits when they can no longer work is because they don’t understand how the Social Security Disability Insurance (SSDI) program is funded.
SSDI is not a “free ride” for individuals who use it. SSDI is a federal insurance program that you pay into over time along with your employer. It ensures that if you become disabled in the future and can no longer work, you can receive benefits to help you with normal living expenses.
FICA, the Federal Insurance Contributions Act, refers to the taxes that largely fund Social Security retirement, disability, survivors, spousal and children’s benefits. FICA taxes also provide a chunk of Medicare’s budget.
The History of FICA
In August of 1935, President Franklin Roosevelt signed the Social Security Act, which was one part of the larger ‘New Deal’ he created as a response to the Great Depression. This form of “social insurance” provided payments to retirees, the disabled, and widows with dependent children.
The FICA tax was created to fund this Social Insurance program (which became SSDI) and was designed to be shared between employers’ and employees. The amount that both parties pay has been increased over time to ensure the fund is large enough to support a growing (and aging) population.
Today, much as it was then, employers pay a percentage of an employee’s wages into the Social Security Trust Fund under provisions of the Federal Insurance Contributions Act, or FICA.
How Do I Pay FICA Taxes?
Most workers have FICA taxes withheld directly from their paychecks. These deductions claim 6.2 percent of an employee’s gross pay for Social Security, up to an income threshold commonly termed “maximum taxable earnings.” In 2020, the threshold is $137,700; any earnings above that are not subject to Social Security taxes.
The limit is adjusted annually based on national changes in wage levels. There is no comparable earnings maximum for Medicare; the 1.45 percent Medicare tax included in FICA is levied on all of your work income. Employers match workers’ Social Security and Medicare contributions.
If you are self-employed, you are subject to SECA (the Self-Employed Contributions Act) and contribute in a similar way to the SSDI program when you file your annual taxes.
How FICA can Determine Your Eligibility for SSDI
Social Security has rules governing FICA taxes and they will evaluate how long you’ve worked before determining if you are eligible for SSDI. In general, claimants must have worked at least 5 out of the last 10 years before their alleged date of disability.
Ex) A claimant alleges that they became disabled on January 1st, 2020. Social Security will review their work records to ensure that they worked at least 5 years between 2010 and 2020 before they are considered eligible to apply for benefits.
There are exceptions to this rule. A qualified disability lawyer can help you review your work history and other qualifying criteria to make sure you are eligible to apply.