Month: May 2026

Preface “In the United States, a program that deals only with the poor will end up being a poor program.” – Wilbur J. Cohen

Social Security – An Introduction

The following is the first in a series of blog posts on Social Security. This first installment:

• • • Reviews the history of the Social Security program
    • Lists the different types of Social Security benefits

Future posts in this series will address:

• • • Claiming retirement benefits
    • Claiming survivor and family member benefits
    • How earned income is taxed to fund Social Security
    • How Social Security benefits are taxed
    • Estimating Social Security’s returns on investment

A Brief History of Social Security in the United States

Social Security was established with the Social Security Act of 1935. Its goal is to provide government insurance of income to the elderly and disabled and their dependents. It is administered by the Social Security Administration (SSA), an independent agency of the federal government created by the same 1935 act. It is the most significant and enduing of president Franklin Roosevelt’s New Deal programs.

The Social Security program was modeled on an earlier program designed to provide benefits for railroad workers under the Railroad Retirement Act of 1934. A year later, the federal government decided to create a similar system that would be mandatory on all types of employers.

When we speak of receiving “Social Security”, we are usually thinking of what is technically Old Age, Survivors, and Disability Insurance (OASDI). OASDI is funded by a special kind of income tax called Federal Insurance Contributions Act (FICA) tax.

The original Social Security Act established FICA tax so that Social Security would not be seen as government assistance for the indigent, but instead as an insurance program for all. Seen this way, FICA is not really a tax, but a mandatory insurance premium. This unusual feature of what would otherwise be just another government spending program continues to play a role in all discussion of possible changes to Social Security as it approaches the end of its first century of existence.

The Social Security Amendments of 1965 created Medicare, a government health insurance program run along similar lines to Social Security. Medicare is administered by the Department of Health and Human Services. These same 1965 amendments also expanded FICA taxes to include funding for Medicare.

By 1972, it was clear that FICA was not sufficient to fund Social Security needs. The Social Security Amendments of 1972 established a second program under SSA called Supplemental Security Income (SSI). Unlike OASDI, SSI is funded by U.S. Treasury general funds. These are the same general funds that fund other government programs. There is no pretense that SSI is a form of insurance.

A Brief Explanation of How FICA Works

At first, Social Security applied only to employees and not to the self-employed. The 1935 act established payroll withholding for the first time in history. This was done so FICA could be deducted from employees’ wages. The act also required, for the first time in history, that employers report and remit the withholding on a quarterly basis. Both the withholding and quarterly filing requirements for employers remain in place today and have expanded beyond their original purposes.

Within a decade, the federal government realized that with these new powers, they could collect and track withholding on regular income tax in addition to FICA. Income tax withholding and employers’ obligation to include it with quarterly payroll returns were codified in law with the Current Tax Payment Act of 1943.

Within another decade, mandatory participation in Social Security was extended to the self-employed with the Self-Employment Contributions Act of 1954. Since the self-employed have no wages to withhold, this act created a new kind of tax just for them. It was originally called SECA tax after the name of the act. It is now usually just called “self-employment tax”. This tax on the self-employed is figured in the same way as FICA and all FICA rate increases and other modifications over the years apply to the self-employed as well.

FICA was originally set at 2% but is now 15.3% of wages and self-employed income. Of this, 12.4% is due to Social Security and 2.9% to Medicare. The Affordable Care Act of 2010 (ACA or “Obamacare”) increased the Medicare portion to 3.8% on income above $200,000 ($250,000 for married filing jointly).

In a later post, we will discuss the nuts and bolts of FICA in more detail.

In general, FICA is a parallel income tax system collected by the IRS using the same processes as regular income tax (withholding, estimated tax payments, etc.). This is unusual in that the federal government has many, many different programs, probably more than anyone could ever count, that all require funding, and yet none besides OASDI and Medicare have their own special income tax that is collected and tracked separately.

We often hear in the news that Social Security will run out of funds by a certain year. This may well be true. Yet we never hear this said about the Air Force, the Small Business Administration, the Environmental Protection Agency, the Smithsonian, the National Endowment for the Arts, SNAP, NASA, etc., etc. Are all these other programs perfectly solvent? Hardly. There is just no pretense that they are to be self-funded, each through a special tax designed specifically for that program.

If you look at your W-2, you will see boxes for Social Security and Medicare deductions. You will not see a Navy deduction, an FBI deduction, a National Park Service deduction, etc. If any of those agencies need more money, the federal government will simply put itself further into debt to give it to them. Are we to believe that if Social Security needs more money, the government will just shrug and say: Sorry, dear senior citizens, you’re on your own…?

On the other hand, maybe it would be a good idea if every government program had to be funded through its own special line item income tax and could expect no additional funding. It would certainly make very transparent to taxpayers how much out of each paycheck was going to what program. At present, 15.3% is going to OASDI and Medicare, and apparently even that is not enough to keep them running for much longer.

Types of Social Security Benefits

There are two basic types of OASDI benefits:

• • • Disability (DI) –  A person of any income level found disabled by the SSA can claim benefits.
    • Retirement (OASI) – This is what we usually mean when we think of “Social Security”.

Benefits can also be claimed by:

• • • Survivors – This is the “S” in “OASI”. Surviving spouses and dependents of deceased OASI recipients can continue to claim the deceased recipient’s benefits.
    • Family members –family members of living OASI and DI recipients can claim benefits. Family member benefits are computed as a percentage of the primary recipient’s benefits.

The next post will explain who can claim retirement benefits and how they are figured.

Preface: “Myth is the mountain whence all the different streams arise which become truths down here in the valley.” – C.S. Lewis

Claiming Dependents: Myths and Facts 

Myth: Once my kid turns 18 (or some other age), I can’t claim him anymore.

Fact: You can only claim the full amount of child tax credit ($2,200 in 2025) for qualifying children who were under 17 at the end of the calendar year. However, you can still claim the lesser amount of $500 for qualifying children who were under 19.

If your child was a full-time student, you can continue claiming him until the year he turns 24.

If your child is permanently and totally disabled, there is no age limit. How do you know if your child qualifies as permanently and totally disabled? Ask a doctor.

A child who meets the requirements of a qualifying relative can still be claimed as a dependent regardless of age. The credit for a qualifying relative is $500.

Myth: If you are married and are the primary earner, you can claim your spouse as a dependent.

Fact: If you are married at the end of the calendar year, you must choose between married filing jointly (MFJ) and married filing separately (MFS) for that year. The MFJ status offers lower tax rates and a higher standard deduction. That is a tax break available to married couples. You cannot claim your spouse as a dependent regardless of who earns the income.

Myth: If my child earned more than $5,000 (or some other amount), I can’t claim him anymore.

Fact: There is no dollar threshold on the income of children who can be claimed as dependents. The support requirement for qualifying children says that a qualifying child must not have provided more than half of his own support. It doesn’t even say that you must have provided more than half, just that the child can’t have provided more than half. And it says nothing of any dollar limit.

What you are probably thinking of is the gross income requirement that applies to qualifying relatives. This was $5,200 in 2025. There is no gross income requirement for qualifying children.

Myth: If my kid had a job and I am claiming him as a dependent, then I report his income on my tax return.

Fact: If your child earned enough to meet filing requirements, he must file his own return and pay his own tax. If he does not meet filing requirements, then his income is tax-free.

If your child had withholding through his paycheck, he may want to file even when not required to in order to claim a refund.

If you are claiming a child as a dependent and that child is filing a tax return, the child’s return must check the box that says “Someone can claim you as a dependent”. If the boxes are mismatched, processing of the returns may be delayed.

In the event that your child had more than $2,700 in unearned income (bank interest, investment income, etc.), then the amount of unearned income above the limit will be taxed at your tax rate. This is known as the “kiddie tax”. It is intended to stop rich parents from avoiding tax by shifting their investments to their children.

Myth: If two people try to claim the same child in the same year, the one with court-ordered legal custody of the child gets the credit.

Fact: Assuming both parties to the dispute meet all requirements for claiming the child, the tie-breaker rules favor the claimant as follows:

1. 1. 1. The parents, if they file a joint return;
      2. The parent, if only one of the persons is the child’s parent;
      3. The parent with whom the child lived the longest during the tax year, if two of the persons are the child’s parent and they do not file a joint return together;
      4. The parent with the highest AGI if the child lived with each parent for the same amount of time during the tax years, and they do not file a joint return together;
      5. The person with the highest AGI, if no parent can claim the child as a qualifying child.

Court-ordered custody doesn’t enter into it.

Preface: “You cannot do everything alone—especially when you get to a certain level. It is impossible.” — Hamdi Ulukaya

Why Business Owners Should Be Part of a Peer Group—Even When They’re Too Busy

As business owners, time is often your most limited and valuable resource. Between managing operations, leading your team, serving clients, and making key decisions, it can feel nearly impossible to step away from the day-to-day demands of running your business. Because of this, many owners view participation in a business peer group as helpful—but not essential.

In reality, the opposite is often true. For many successful business owners, joining a peer group is not optional—it is one of the most impactful investments they make in both their business and their leadership development.

A business peer group brings together a select group of owners or executives who meet regularly to share experiences, discuss challenges, and provide insight into one another’s businesses. Unlike internal team discussions, these conversations are not limited by company culture, hierarchy, or internal bias. Instead, they offer objective perspectives from individuals who understand the pressures and responsibilities of ownership.

One of the greatest benefits of participating in a peer group is gaining perspective. Business ownership can be isolating. Many of the most important decisions you make cannot be easily shared with employees, and even trusted advisors may not fully appreciate the day-to-day realities of your business. A peer group provides a forum for discussing those challenges openly with individuals who have faced similar situations. Often, what feels like a unique problem is something another member has already experienced and successfully navigated.

For example, a business owner considering a significant hire, expansion, or pricing adjustment may benefit from hearing how others approached similar decisions. Instead of relying solely on internal assumptions, the owner gains access to real-world insights that can improve decision-making and reduce risk. In many cases, a single conversation can prevent costly mistakes or uncover opportunities that would not have been considered otherwise.

Another key advantage of peer groups is accountability. Strategic initiatives are often pushed aside when daily operations demand attention. Peer groups create a structure for discussing goals, reviewing progress, and revisiting commitments. This level of accountability helps ensure that important initiatives—such as improving profitability, developing leadership teams, or refining processes—do not get lost amid the demands of daily business.

Beyond business strategy, peer groups also contribute to personal and leadership development. The most effective business owners are continually evolving in how they lead, communicate, and make decisions. Being surrounded by other growth-minded individuals creates an environment where ideas are challenged, assumptions are tested, and better approaches are developed. Over time, this leads not only to stronger businesses but to more confident and capable leaders.

One of the most common objections to joining a peer group is the time commitment. Many business owners feel they are too busy to commit to regular meetings. However, this perspective often overlooks the return on that investment of time. The hours spent in a peer group are not lost—they are leveraged. The clarity gained, mistakes avoided, and opportunities identified often far outweigh the time commitment required. In fact, many owners find that participation in a peer group ultimately saves time by helping them make better decisions more efficiently.

It is also worth noting that the most successful and disciplined business owners are often those who prioritize these commitments. They recognize that stepping away from the day-to-day operations, even briefly, allows them to work on the business rather than simply in it. This shift in perspective is often what enables long-term growth and sustainability.

At our firm, we frequently see the difference between business owners who operate in isolation and those who intentionally surround themselves with strong peers. The latter group tends to make more informed decisions, adapt more quickly to challenges, and maintain a clearer vision for their business’s future.

If you are currently navigating growth, facing complex decisions, or simply looking to become a more effective leader, it may be worth considering whether a business peer group could provide value. While the time commitment may seem difficult to justify initially, the long-term benefits often prove to be well worth the investment.

In many cases, the question is not whether you have time to participate—it is whether you can afford not to.