286 Human Resources Management for Public and Nonprofi t Organizations
established in 1935; however, public and nonprofi t employers and employees
could decline to pay Social Security taxes and earn no credit toward
Social Security benefi ts. The Social Security Amendments of 1983 made Social
Security coverage mandatory for all employees of nonprofi t organizations as
of January 1, 1984. Coverage was extended to nonprofi t employees work-
ing for organizations that had previously terminated coverage, as well as
to employees who had never been covered by Social Security. The 1983
amendments included a special section that provided for nonprofi t employees
fi fty - fi ve years and older to be considered fully insured for benefi ts after
acquiring at least twenty quarters of coverage.
The Social Security Act originally excluded state and local govern-
ments from coverage because of the concern that taxation of these gov-
ernments by the federal government might be unconstitutional. The act
was subsequently amended in the 1950s to permit state and local gov-
ernments to choose coverage for employees not already covered under a
retirement system. After fi ve years of participating in the Social Security
system, state and local governments could choose to repeal their action
and terminate coverage of their employees. This was changed in 1983 by
the Social Security Amendments Act, which eliminated the right of state
and local government employers to withdraw from the system. Another
change came in 1986 when the Budget Reconciliation Act amended the
Social Security Act and required all individuals hired by a state or local
government to be covered by the Medicare segment of the program and
subject to employer and employee payroll taxes. As of July 2, 1991, all
state and local government employees (except police offi cers) not covered
by a retirement program were required to participate in the full Social
Security program. Federal employees hired on or after January 1, 1984,
are covered by Social Security and are subject to full Social Security
taxation.
Social Security provides four kinds of benefi ts: old - age or disability
benefi ts, benefi ts for the dependents of retired or disabled workers, benefi ts
for the survivors of a worker who dies, and the lump - sum death benefi t.Medicare
Funding for Medicare comes partially from payroll taxes, known as FICA
(Federal Insurance Contributions Act) taxes. FICA comprises the Social
Security tax and Medicare tax. The rate of the Medicare tax is 2.9 percent.
Employers withhold 1.45 percent from their employees and match it with
another 1.45 percent. There is no wage base for the Medicare portion of