Social Security and Medicare

Maximizing Retirement Benefits
AICPA (Verlag)
  • 1. Auflage
  • |
  • erschienen am 30. Juni 2020
  • |
  • 192 Seiten
E-Book | ePUB mit Adobe-DRM | Systemvoraussetzungen
978-1-119-73733-9 (ISBN)
The long-term future of the American Social Security system which provides retirement, disability, and survivor benefits to millions, is uncertain. This is triggering big concerns for many workers who are paying into the system and need to make decisions about their retirement. This book features real-world situations around Social Security and Medicare to help financial professionals provide better advise to their clients on their personal financial plans.

Key topics include:
* What Medicare will and will not do
* Managing Medicare gaps
* Analyzing the wide menu of Social Security benefits
* Social Security benefits for workers and families: retirement, survivor, disability, and death benefit
* Tax impact of Social Security premiums and benefits
* Impact of the 3.8 percent Medicare surtax on investment income
* Recent changes to the Medicare law
1. Auflage
  • Englisch
John Wiley & Sons
  • 2,66 MB
978-1-119-73733-9 (9781119737339)
weitere Ausgaben werden ermittelt
Theodore J. Sarenski, CPA.PFS, CFP, is chief executive officer and president of Blue Ocean Strategic Capital. As the founding member of Blue Ocean Strategic Capital, he oversees all aspects of the company's operations, including the investment committee's management of portfolio assets. He has written articles for the Journal of Accountancy, the CPA Journal, the Journal of Taxation and the AICPA Wealth Management Insider. Sarenski has lectured at Syracuse University. In addition, he is a featured planner on Syracuse's NBC affiliate, WSTM-3, taking viewers' calls regarding financial planning and investment topics and offering planning concepts to the viewers on the nightly news program.
Chapter 1 1-1

How the Social Security System Operates 1-1

FICA tax 1-4

Medicare tax 1-6

Medicare tax on earned income 1-7

Medicare tax on net investment income 1-10

Not everyone is covered under Social Security 1-13

Summary 1-15

Chapter 2 2-1

Benefit Eligibility 2-1

Summary 2-8

Chapter 3 3-1

Social Security Retirement Benefits 3-1

Retirement benefits 3-3

AIME 3-5

Calculating the PIA 3-7

Reduction in benefits for claiming benefits early 3-11

Delaying Social Security retirement benefits 3-14

Spousal retirement benefits 3-16

Working after retirement 3-23

Summary 3-25

Chapter 4 4-1

Social Security Survivors' Benefits 4-1

No benefits in the month of death 4-3

Children's benefits 4-10

Dependent parent's benefits 4-12

Summary 4-13

Chapter 5 5-1

Disability Income Benefits 5-1

Characteristics attributable to disabled-worker beneficiaries 5-3

Medical eligibility for Social Security disability income benefits 5-13

When SSDI benefits will end 5-20

Summary 5-23

Appendix A Chapter 5, A-1

OASDI and SSI Program Rates & Limits 2019 Chapter 5, A-1

Appendix B Chapter 5, B-1

OASDI and SSI Program Rates & Limits 2018 Chapter 5, B-1

Chapter 6 6-1

Taxation of Social Security Benefits 6-1

How benefits are reported 6-3

Summary 6-10

Chapter 7 7-1

Medicare 7-1

Original Medicare 7-3

Medicare premiums and coinsurance rates Medicare Part A 7-7

Current Medicare premiums and deductibles 7-8

Are the premiums tax-deductible? 7-17

Skilled nursing care under Medicare Part A 7-20

Home healthcare coverage Under Medicare Part A 7-22

Hospice coverage Under Medicare Part A 7-25

Medicare Part B coverage 7-27

Medicare Part C Advantage plans 7-29

Medicare Part D -- Prescription drugs 7-31

Medicare supplemental (Medigap) insurance 7-34

Summary 7-38

Chapter 8 8-1

The Future of Social Security and Medicare 8-1

The system is strained 8-2

Fixing the problems 8-9

Summary 8-11

Appendix A A-1

Fact Sheet A-1

Index Index 1

Solutions Solutions 1

Chapter 1 Solutions 1

Chapter 2 Solutions 2

Chapter 3 Solutions 3

Chapter 4 Solutions 4

Chapter 5 Solutions 6

Chapter 6 Solutions 8

Chapter 7 Solutions 9

Chapter 8 Solutions 1

Chapter 1
How the Social Security System Operates

Learning objectives

  • Recall that the Federal Insurance Contributions Act (FICA) tax applies to the funding of Social Security retirement, disability benefits, and Medicare benefits.
  • Recognize how the additional Medicare tax operates.
  • Identify instances in which there is no requirement for FICA taxation.


On August 14, 1935, the Social Security Act established a delivery system to provide old-age benefits for eligible workers, assistance for victims of industrial accidents, unemployment insurance benefits, and aid for dependent mothers and children, the blind, and the physically handicapped.

In 2016, the Social Security Administration (SSA) paid more than $1 trillion to more than 62 million recipients; 75% were retired workers and their dependents, 16% were disabled workers and their dependents, and 9% were survivors of deceased workers.

The Social Security Act authorized the Social Security Board, which now operates as the Social Security Administration, to register citizens for benefits, administer the contributions received by the federal government, and send payments to recipients. U.S. Social Security "insurance" is supported from "contributions" in the form of taxes on individuals' wages and employers' payrolls rather than directly from government funds. Tax revenue generated from the income tax on Social Security benefits received by the IRS from individuals' personal income tax returns is also a source of funds to be paid to Social Security recipients.

A brief history of the Social Security Act

Before the 1930s, support for the elderly was generally the responsibility of the older individual's family rather than that of the federal government (except for veterans' pensions). However, in light of the economic nightmare caused by the Great Depression, congressional support for numerous proposals for a national old-age insurance system arose. On January 17, 1935, President Franklin D. Roosevelt sent a message to Congress asking for "economic security" legislation.

The same day, Senator Robert Wagner of New York and Representative David Lewis of Maryland introduced bills reflecting the Roosevelt administration's wishes. The resulting Senate and House bills encountered opposition from those who considered it a governmental takeover of individual choice and from those who sought exemption from payroll taxes for employers who adopted government-approved pension plans. Eventually the bill passed both houses, and on August 14, 1935, President Roosevelt signed the Social Security Act into law. Originally, the Social Security Act of 1935 was named the Economic Security Act, but this title was changed during a Ways and Means Committee meeting on March 1, 1935. Congressman Frank Buck (D-Calif.) made a motion to change the name of the bill to the "Social Security Act of 1935." The motion was carried by a voice vote of the committee.

Through the 80th anniversary of Social Security in the year 2015, the Social Security Act has had 12 major legislative changes. The changes have mostly added more workers subject to withholding of Social Security tax on wages, increased the age of eligibility, adjusted the amount of wages subject to Social Security withholding, and other changes meant to shore up what was a shortage of Social Security tax collections at various times in history.

The Bipartisan Budget Act of 2015 passed in November of 2015 rescinded two favorite methods of collecting Social Security benefits: the file and suspend and the restricted application for spousal benefits only at full retirement age (FRA). The two methods were first introduced in the Senior Citizens' Freedom to Work Act of 2000.

File and suspend was a strategy that allowed a worker to file for Social Security benefits at full retirement age and then immediately suspend receiving those benefits to a later age up to age 70. The filing part allowed a spouse or qualifying child to start receiving Social Security benefits on that worker's record even though the worker was delaying their own benefit. File and suspend is still allowed for those workers who were 66 by April 30, 2016. After that date, a spouse or qualifying child will only be allowed to collect a benefit on a worker's record if that worker is actually collecting a benefit. Suspension of benefit collection is still available, meaning that a Social Security recipient between the ages of 62 and 70 can suspend collection of benefits and get additional credits from that moment to age 70. However, as of April 30, 2016, spousal and dependent benefits of that worker are also suspended.

Restricted application is a strategy that became popular after being introduced in the Senior Citizens' Freedom to Work Act. It allowed a spouse at full retirement age to elect to collect only a spousal benefit on their spouse's work record and defer the collecting of his or her own benefit to age 70, collecting an 8% per year credit to their own benefit. People born in 1953 and earlier will still be allowed to file a restricted application. Those people born after 1953 will get the higher of their own benefit or the spousal benefit when they file for Social Security benefit no matter what age they file for the benefit. Therefore, restricted application is still available for those turning age 66 for the next two years.

Lump sum was also eliminated in the Bipartisan Budget Act. The lump sum allowed a person to file and suspend at full retirement age and then at a later age, before age 70, change their mind and collect a lump sum benefit for all of the benefits they would have started receiving at full retirement age to their current age, and also get a monthly benefit starting immediately as if they had begun collecting benefits from full retirement age. The lump sum is only allowed for people who were age 66 by April 30, 2016.

Knowledge check

  1. Which began in 1935?
    1. Social Security.
    2. Medicaid.
    3. SSI.
    4. Medicare.

The Social Security Administration

In 1953, the SSA was placed under the Department of Health, Education, and Welfare, which became the Department of Health and Human Services in 1980. In 1994, President Bill Clinton signed 42 USC Section 901 returning the SSA to the status of an independent agency in the executive branch of government.

FICA tax

Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program and Medicare's Hospital Insurance (HI) program are financed primarily by employment taxes.

Social Security payroll taxes are collected under the authority of the FICA.

The payroll taxes collected for Social Security function as contributions to the social insurance system, commonly known as Social Security. Essentially, FICA operates as the tax provision of the Social Security Act as it appears in the IRC.

Individuals generally never stop paying Social Security and Medicare taxes on work or self-employment earnings, regardless of their age or whether they concurrently receive benefits. Employers continue to be responsible for the matching portion of Social Security and Medicare taxes.

Tax rates are set by law (see Compilation of Social Security Laws at and apply to earnings up to a maximum amount ( for OASDI (

FICA tax includes two separate taxes. One is Social Security tax and the other is Medicare tax. Different rates apply for each of these taxes.

The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.

Only the Social Security tax has a wage base limit. The wage base limit is the maximum wage that is subject to the tax for that year. For earnings in 2019, this base is $132,900.

There is no wage base limit for Medicare tax. All covered wages are subject to Medicare tax.

Base rates for FICA and Medicare tax rates have not changed and a 0.9% Medicare tax on earned income applies to certain upper-income taxpayers.

FICA and Medicare tax rates

In tax year 2019, the rate is 7.65% in total: 6.2% for the Social Security portion and 1.45% for Medicare.

Beginning January 1, 2013, Additional Medicare Tax applies to an individual's Medicare wages that exceed a threshold amount, based on the taxpayer's filing status. Employers are responsible for withholding the 0.9% Additional Medicare Tax on earned income in excess of $200,000 in a calendar year, without regard to filing status. An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. There is no employer match for Additional Medicare Tax.

The taxable wage base

For 2019, the first $132,900 of wages is taxed at 6.2 percent for the non-Medicare element of Social Security. Earnings greater than this amount are taxed for Medicare purposes but not in terms of Social Security retirement, survivor, or disability insurance benefits. Therefore, an employee's maximum Social Security contribution for 2019 is $8,638.50 and for 2018...

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