Academic journal article Social Security Bulletin

Social Security Administration's Master Earnings File: Background Information

Academic journal article Social Security Bulletin

Social Security Administration's Master Earnings File: Background Information

Article excerpt

The Social Security Administration (SSA) receives reports of earnings for the U.S. working population each year. Earnings data are used to administer the Social Security programs and to conduct research on the populations served by those programs. The administrative needs of SSA and other agencies have changed over time and, as a result, there have been numerous changes to the main source of SSA's earnings data, which is known as the Master Earnings File (MEF). By documenting the history, content, limitations, complexities, and uses of the MEF (and data files derived from the MEF), this article serves as a resource for researchers who use earnings data to study work patterns and their implications. It is also a resource for policymakers and administrators who must understand the data used in administering current-law programs and the data available to inform potential changes to those programs.

Introduction

Each year employers and the Internal Revenue Service (IRS) send information to the Social Security Administration (SSA) on the earnings of the U.S. working population. SSA uses this information to calculate benefit amounts for all types of beneficiaries, including retired workers, spouses, widow(er)s, children, and the disabled. SSA stores this earnings information as the Master Earnings File (MEF) and because it comprises IRS tax data, it is subject to IRS disclosure rules.1 This file contains data derived from IRS Form W-2, quarterly earnings records, and annual income tax forms. These data include regular wages and salaries, tips, self-employment income, and deferred compensation (contributions or distributions). In addition to calculating Social Security benefits, MEF data are used for policy analysis and research both within and outside SSA. This article is primarily for researchers interested in using data derived from the MEF to better understand the past and present U.S. working population.2 It is also of use to policymakers and administrators who must understand the underlying data used in administering current-law programs and the data available to inform potential changes to those programs. This article examines the history of the data, how the data are collected and entered into the SSA computer systems, the information contained in the data, some limitations and complexities of using the data for research purposes, and how the agency uses the data.

History of the Social Security Program

The original Social Security Act, which was enacted in 1935, required that monthly benefits be paid to qualified individuals aged? 65 or older based on their wages from employment before age? 65.3 The law tasked SSA's predecessor, the Social Security Board (SSB), with obtaining earnings information in order to calculate benefit amounts in retirement. In order to assign earnings to a specific individual, the SSB established Social Security numbers (SSNs) to allow employers to uniquely identify, and accurately report, earnings covered under the new program. This process began in November? 1936 with the assistance of the Post Office Department (Corson 1938). Beginning in 1937, information on earnings up to the taxable maximum of $3,000 was collected for all qualified individuals. This was the maximum amount on which both employers and employees were required to pay their share of taxes (1.0? percent each) under Title VIII of the original Social Security Act. In the 1939 amendments, the taxing provisions were taken out of the Social Security Act and placed in the Internal Revenue Code as the Federal Insurance Contributions Act (FICA) (SSA 2009e).4 FICA taxes (also called payroll taxes) continue to be withheld from wages and earnings up to the taxable maximum, which has increased over the past 70? years. For 2009, Social Security taxes are collected on earnings up to $106,800.

Changes to Coverage

The Social Security Act stipulated who would be covered by the program, meaning those who would pay into the system while working and then receive benefits in retirement. …

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