Social Security Administration's Master Earnings File: Background Information

by Anya Olsen and Russell Hudson
Social Security Bulletin, Vol. 69 No. 3, 2009

Text description for Chart 1.
Historical expansion of Social Security coverage: Additional types of workers covered, by date of authorizing legislation

1935: All workers in commerce and industry under age 65 (covered after 1936).

1939: Age restriction eliminated (effective 1940).

1950: Regularly employed farm and domestic workers, nonfarmself-employed (except members of professional groups), U.S. citizens employed abroad by U.S. employers, and workers in Puerto Rico and the U.S. Virgin Islands (effective 1951).

1954: Self-employed farm workers, self-employed professionals (with some exceptions), and home workers (effective 1955).

1960: U.S. citizens employed in the U.S. by foreign governments or international organizations, and workers in Guam and American Samoa (effective 1961).

1965: Interns, self-employed physicians, and employees with tip income (for employee share of tax only) (effective 1966).

1982: Federal employees, for Medicare Part A (Hospital Insurance) only (effective 1983).

1983: Federal employees hired after 12/31/1983, including executive, legislative, and judicial branch employees, members of Congress, president, vice president, sitting federal judges, most executive-level political appointees, newly hired employees of nonprofit organizations, and U.S. residents employed abroad by U.S. employers (effective 1984).

1990: State and local government employees not under a state or local government retirement system (with some exceptions) (effective July 1991).

1994: Police and firefighters under a public retirement system can be covered for Social Security in all states (effective August 1994).

Text description for Chart 2.
Selected Social Security program changes affecting Master Earnings File information

1935: Original Social Security Act passed, requiring a combined payroll tax of 2 percent on earnings up to $3,000 (first taxes collected in 1937).

1939: Federal Insurance Contributions Act (FICA) established under the Internal Revenue Code.

1950: First payroll tax increase from a combined 2 percent to a combined 3 percent; first earnings records and taxes from self-employment collected (effective 1951)

1951: First taxable maximum increase, from $3,000 to $3,600.

1965: Medicare program signed into law (first Hospital Insurance taxes collected in 1966).

1972: Social Security taxable maximum is indexed to average wages for annual increases (effective 1975).

1978: Earnings reported to SSA on Form W-2; reporting basis changes from quarterly to annual.

1990: The taxable maximum for the Hospital Insurance portion of Social Security increases (effective 1991), and deferred compensation is explicitly identified on individuals' earnings records.

1993: Hospital Insurance taxable maximum repealed (effective 1994).

Text description for Chart 3.
Summary of earnings in the Social Security Master Earnings File

1937–1950: Aggregate covered earnings

1951–1977: Quarterly earnings data reported by employer

1978 to date: Annual wage, salary, and tip income (covered and noncovered) reported on Form W-2; covered self-employment income reported on Form 1040 SE a

1990 to date: Summary deferred compensation

1991 to date b: Taxable Medicare earnings above the taxable maximum

2004 to date: Detailed deferred compensation

a. For 1978 to 1990, self-employment income is included only to the extent that it is taxable under the Social Security program. In general, during this period there is no way to break out the amount of covered earnings from wages and salary, self-employment income, or earnings from agriculture. Beginning in 1991, there is a difference between the maximum amount of earnings covered under Social Security and the Medicare program. In 1994, the cap on taxable Medicare-covered earnings was eliminated. As a result, 1994 is the firstyear in which earnings data provide a full accounting for wage and salary, tip, and self-employment income.
b. Beginning in 1991, the amount of earnings taxable under the Social Security program and under the Medicare program differed. From 1991 to 1993, there were caps on the total amount of earnings taxable under the Medicare program. In 1994, the cap on the amount of earnings taxable under the Medicare program was eliminated.