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<h1 itemprop="headline">Social Security Administration's Master Earnings File: Background Information</h1>
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<div id="hByline">by <span itemprop="author">Anya Olsen and Russell Hudson</span><br>Social Security Bulletin, <abbr title="Volume">Vol.</abbr> 69, <abbr title="Number">No.</abbr> 3, 2009 (released October 2009)</div>
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<div id="breadcrumbs" itemscope itemtype="http://schema.org/BreadcrumbList">You are here: <span itemprop="itemListElement" itemscope itemtype="http://schema.org/ListItem"><a href="/" itemprop="item"><span itemprop="name">Social Security Administration</span></a><meta itemprop="position" content="1" /></span> > <span itemprop="itemListElement" itemscope itemtype="http://schema.org/ListItem"><a href="/policy/index.html" itemprop="item"><span itemprop="name">Research, Statistics & Policy Analysis</span></a><meta itemprop="position" content="2" /></span> > <span itemprop="itemListElement" itemscope itemtype="http://schema.org/ListItem"><a href="/policy/docs/ssb/index.html" itemprop="item"><span itemprop="name">Social Security Bulletin</span></a><meta itemprop="position" content="3" /></span> > <span itemprop="itemListElement" itemscope itemtype="http://schema.org/ListItem"><a href="index.html" itemprop="item"><span itemprop="name"><abbr title="Volume">Vol.</abbr> 69, <abbr title="Number">No.</abbr> 3</span></a><meta itemprop="position" content="4" /></span></div>
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<p id="synopsis" itemprop="description">The Social Security Administration (<abbr class="spell">SSA</abbr>) receives reports of earnings for the <abbr>U.S.</abbr> 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 <abbr class="spell">SSA</abbr> and other agencies have changed over time and, as a result, there have been numerous changes to the main source of <abbr class="spell">SSA</abbr>'s earnings data, which is known as the Master Earnings File (<abbr class="spell">MEF</abbr>). By documenting the history, content, limitations, complexities, and uses of the <abbr class="spell">MEF</abbr> (and data files derived from the <abbr class="spell">MEF</abbr>), 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.</p>
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<hr />
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<div class="eightypercent">
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<p>Anya Olsen is with the Office of Retirement Policy, Office of Retirement and Disability Policy (<abbr class="spell">ORDP</abbr>), Social Security Administration (<abbr class="spell">SSA</abbr>). Russell Hudson is with the Office of Research, Evaluation, and Statistics, <abbr class="spell">ORDP</abbr>, <abbr class="spell">SSA</abbr>.</p>
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<p><i>Acknowledgments</i>: The authors thank Michael Compson, Susan Grad, Joyce Manchester, David Pattison, Carolyn Puckett, Dave Shoffner, Jae Song, Hilary Waldron and David Weaver for their helpful comments and suggestions. In addition, comments received from Phil Itzkowitz and his staff in the <abbr class="spell">SSA</abbr> Office of Systems and from Bert Kestenbaum, Jeff Kunkel, and Bill Piet in the <abbr class="spell">SSA</abbr> Office of the Chief Actuary were very useful.</p>
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<p>Contents of this publication are <a href="/policy/accessibility.html">not copyrighted</a>; any items may be reprinted, but citation of the <i>Social Security Bulletin</i> as the source is requested. The findings and conclusions presented in the <i>Bulletin</i> are those of the authors and do not necessarily represent the views of the Social Security Administration.</p>
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</div>
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</div>
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<h2>Introduction</h2>
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<div class="abbrtable">
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<table role="presentation">
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<caption>Selected Abbreviations</caption>
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<tr>
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<td><abbr class="spell">AWI</abbr></td>
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<td>average wage index</td>
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</tr>
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<tr>
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<td><abbr class="spell">CWHS</abbr></td>
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<td>Continuous Work History Sample</td>
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</tr>
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<tr>
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<td><abbr>EIN</abbr></td>
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<td>employer identification number</td>
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</tr>
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<tr>
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<td><abbr class="spell">ESF</abbr></td>
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<td>Earnings Suspense File</td>
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</tr>
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<tr>
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<td><abbr>FICA</abbr></td>
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<td>Federal Income Contributions Act</td>
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</tr>
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<tr>
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<td><abbr class="spell">HI</abbr></td>
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<td>Hospital Insurance</td>
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</tr>
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<tr>
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<td><abbr class="spell">HSA</abbr></td>
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<td>Health Savings Account</td>
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</tr>
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<tr>
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<td><abbr class="spell">IRS</abbr></td>
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<td>Internal Revenue Service</td>
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</tr>
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<tr>
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<td><abbr class="spell">MEF</abbr></td>
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<td>Master Earnings File</td>
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</tr>
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<tr>
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<td><abbr class="spell">MQGE</abbr></td>
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<td>Medicare Qualified Government Employment</td>
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</tr>
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<tr>
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<td><abbr class="spell">OASDI</abbr></td>
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<td>Old-Age, Survivors, and Disability Insurance</td>
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</tr>
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<tr>
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<td><abbr title="Public Law">P.L.</abbr></td>
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<td>Public Law</td>
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</tr>
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<tr>
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<td><abbr class="spell">QC</abbr></td>
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<td>quarter of coverage</td>
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</tr>
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<tr>
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<td><abbr class="spell">SSA</abbr></td>
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<td>Social Security Administration</td>
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</tr>
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<tr>
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<td><abbr class="spell">SSB</abbr></td>
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<td>Social Security Board</td>
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</tr>
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<tr>
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<td><abbr class="spell">SSN</abbr></td>
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<td>Social Security number</td>
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</tr>
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</table>
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</div>
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<p>Each year employers and the Internal Revenue Service (<abbr class="spell">IRS</abbr>) send information to the Social Security Administration (<abbr class="spell">SSA</abbr>) on the earnings of the <abbr>U.S.</abbr> working population. <abbr class="spell">SSA</abbr> uses this information to calculate benefit amounts for all types of beneficiaries, including retired workers, spouses, <span class="nobr">widow(er)s,</span> children, and the disabled. <abbr class="spell">SSA</abbr> stores this earnings information as the Master Earnings File (<abbr class="spell">MEF</abbr>) and because it comprises <abbr class="spell">IRS</abbr> tax data, it is subject to <abbr class="spell">IRS</abbr> disclosure rules.<sup><a href="#mn1" id="mt1">1</a></sup> This file contains data derived from <abbr class="spell">IRS</abbr> Form <span class="nobr">W-2,</span> 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, <abbr class="spell">MEF</abbr> data are used for policy analysis and research both within and outside <abbr class="spell">SSA</abbr>. This article is primarily for researchers interested in using data derived from the <abbr class="spell">MEF</abbr> to better understand the past and present <abbr>U.S.</abbr> working population.<sup><a href="#mn2" id="mt2">2</a></sup> 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 <abbr class="spell">SSA</abbr> 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.</p>
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<h2>History of the Social Security Program</h2>
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<p>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.<sup><a href="#mn3" id="mt3">3</a></sup> The law tasked <abbr class="spell">SSA</abbr>'s predecessor, the Social Security Board (<abbr class="spell">SSB</abbr>), with obtaining earnings information in order to calculate benefit amounts in retirement. In order to assign earnings to a specific individual, the <abbr class="spell">SSB</abbr> established Social Security numbers (<abbr class="spell">SSN</abbr>s) 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 <abbr title="eight">VIII</abbr> 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 (<abbr>FICA</abbr>) (<abbr class="spell">SSA</abbr> 2009e).<sup><a href="#mn4" id="mt4">4</a></sup> <abbr>FICA</abbr> 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.</p>
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<h3>Changes to Coverage</h3>
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<p>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. The types and numbers of workers covered by Social Security have changed over time as more categories of workers have been added to the rolls (see Chart 1). Under the original act, all workers in commerce and industry (excluding railroads) were covered by the program.<sup><a href="#mn5" id="mt5">5</a></sup> In 1940, 24 million workers were in covered employment, which was approximately 52 percent of the employed labor force (<abbr class="spell">SSB</abbr> 1944). Self-employment earnings information was first collected in 1951 when nonfarm self-employed workers (except members of professional groups) were added to the Social Security program. Additional groups of self-employed workers and professionals were added through legislation passed in 1954, 1956, and 1965 (more information appears in the Self-Employment Earnings section).</p>
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<div class="chartCenter">
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<div class="chart700">
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<div class="title" id="chart1">Chart 1.<br>Historical expansion of Social Security coverage: Additional types of workers covered, by date of authorizing legislation</div>
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<div class="scrollChart"><img src="v69n3p29_chart1.gif" alt="Flowchart with text description below." width="699" height="357" /></div>
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<div class="altText"><a class="altTextToggle" href="">Show text description</a>
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<div class="align-left">
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<p class="noindent"><b>Text description for Chart 1.<br>Historical expansion of Social Security coverage: Additional types of workers covered, by date of authorizing legislation</b></p>
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<p class="noindent">1935: All workers in commerce and industry under age 65 (covered after 1936).</p>
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<p class="noindent">1939: Age restriction eliminated (effective 1940).</p>
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<p class="noindent">1950: Regularly employed farm and domestic workers, nonfarmself-employed (except members of professional groups), <abbr>U.S.</abbr> citizens employed abroad by <abbr>U.S.</abbr> employers, and workers in Puerto Rico and the <abbr>U.S.</abbr> Virgin Islands (effective 1951).</p>
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<p class="noindent">1954: Self-employed farm workers, self-employed professionals (with some exceptions), and home workers (effective 1955).</p>
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<p class="noindent">1960: <abbr>U.S.</abbr> citizens employed in the <abbr>U.S.</abbr> by foreign governments or international organizations, and workers in Guam and American Samoa (effective 1961).</p>
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<p class="noindent">1965: Interns, self-employed physicians, and employees with tip income (for employee share of tax only) (effective 1966).</p>
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<p class="noindent">1982: Federal employees, for Medicare Part A (Hospital Insurance) only (effective 1983).</p>
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<p class="noindent">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 <abbr>U.S.</abbr> residents employed abroad by <abbr>U.S.</abbr> employers (effective 1984).</p>
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<p class="noindent">1990: State and local government employees not under a state or local government retirement system (with some exceptions) (effective July 1991).</p>
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<p class="noindent">1994: Police and firefighters under a public retirement system can be covered for Social Security in all states (effective August 1994).</p>
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</div>
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</div>
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<div class="onlyNote">SOURCE: <abbr class="spell">SSA</abbr> 2008, Table 2.A1.</div>
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</div>
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</div>
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<p>Various types of agricultural and domestic workers and members of the uniformed services on active duty were also added during the 1950s and 1960s, bringing the number of workers with taxable earnings to 92.1 million by 1970 (<abbr class="spell">SSA</abbr> 2008). The 1983 amendments to the act added newly hired federal employees, members of Congress, the president and vice president, and newly hired employees of nonprofit organizations. Today, approximately 96 percent of the <abbr>U.S.</abbr> workforce (including workers in American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the <abbr>U.S.</abbr> Virgin Islands) participate in the Social Security program (<abbr class="spell">SSA</abbr> 2008).<sup><a href="#mn6" id="mt6">6</a></sup> As more workers are added to the program, <abbr class="spell">SSA</abbr> collects an increasing number of earnings records each year. The <abbr class="spell">MEF</abbr> currently collects earnings information on an annual basis for about 160 million people working in the United States and its territories.</p>
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<h3>Changes to the Taxable Maximum</h3>
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<p>In addition to changing coverage laws, changes to the Social Security program and Social Security-related tax laws have also affected the information contained in the <abbr class="spell">MEF</abbr> (see Chart 2). Since its inception, there have been increases to the maximum income subject to Social Security payroll taxes, which has resulted in higher earnings amounts being stored in the <abbr class="spell">MEF</abbr>. The first increase in the taxable maximum, from $3,000 to $3,600, occurred in 1951, and four additional increases occurred through 1971. The 1972 Social Security Amendments provided for annual increases in the taxable maximum, proportional to the increase in the national average wage, beginning in 1975.<sup><a href="#mn7" id="mt7">7</a></sup> Since 1978, earnings information has also been collected for workers and earnings not covered by the program and for those with earnings above the taxable maximum (for more information on changes to the earnings data see the Relevant Time Periods section).</p>
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<div class="chartCenter">
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<div class="chart700">
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<div class="title" id="chart2">Chart 2.<br>Selected Social Security program changes affecting Master Earnings File information</div>
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<div class="scrollChart"><img src="v69n3p29_chart2.gif" alt="Flowchart with text description below." width="706" height="328" /></div>
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<div class="altText"><a class="altTextToggle" href="">Show text description</a>
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<div class="align-left">
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<p class="noindent"><b>Text description for Chart 2.<br>Selected Social Security program changes affecting Master Earnings File information</b></p>
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<p class="noindent">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).</p>
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|
<p class="noindent">1939: Federal Insurance Contributions Act (<abbr>FICA</abbr>) established under the Internal Revenue Code.</p>
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|
<p class="noindent">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)</p>
|
|
<p class="noindent">1951: First taxable maximum increase, from $3,000 to $3,600.</p>
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|
<p class="noindent">1965: Medicare program signed into law (first Hospital Insurance taxes collected in 1966).</p>
|
|
<p class="noindent">1972: Social Security taxable maximum is indexed to average wages for annual increases (effective 1975).</p>
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|
<p class="noindent">1978: Earnings reported to <abbr class="spell">SSA</abbr> on Form <span class="nobr">W-2;</span> reporting basis changes from quarterly to annual.</p>
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|
<p class="noindent">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.</p>
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|
<p class="noindent">1993: Hospital Insurance taxable maximum repealed (effective 1994).</p>
|
|
</div>
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|
</div>
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|
<div class="firstNote">SOURCE: <abbr class="spell">SSA</abbr> 2008, Table 2.A3; <abbr class="spell">SSA</abbr> 2009e; and Donkar 1981.</div>
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<div class="note">NOTES: Entries with effective dates given are shown by date of authorizing legislation.</div>
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|
<div class="lastNote"><abbr class="spell">SSA</abbr> = Social Security Administration.</div>
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</div>
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</div>
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<p>In this article "covered earnings" refers to those from employment covered by Social Security or, more specifically, <span class="nobr">Old-Age,</span> Survivors, and Disability Insurance (<abbr class="spell">OASDI</abbr>). "Noncovered earnings" refers to those from employment not covered by <abbr class="spell">OASDI</abbr>. Covered earnings below the taxable maximum are called "<abbr class="spell">OASDI</abbr> taxable earnings," while those above the taxable maximum are referred to as "<abbr class="spell">OASDI</abbr> nontaxable earnings." A "quarter of coverage" (<abbr class="spell">QC</abbr>) is the basic unit for determining whether a worker is insured under the Social Security program. Covered workers must have a specific number of <abbr class="spell">QC</abbr>s to receive benefits, and the earnings needed to qualify for one <abbr class="spell">QC</abbr> has changed over time.<sup><a href="#mn8" id="mt8">8</a></sup></p>
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<h3>Medicare</h3>
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<p>Other major changes to the program, such as the creation of Medicare in 1965, required new information to be added to the <abbr class="spell">MEF</abbr>. Medicare originally contained two parts: Part A, or Hospital Insurance (<abbr class="spell">HI</abbr>), provided free of premiums and generally covering inpatient hospital care; and Part B, or Supplemental Medical Insurance (<abbr class="spell">SMI</abbr>), requiring beneficiaries to pay a monthly premium and covering certain medical services and supplies.<sup><a href="#mn9" id="mt9">9</a></sup> Beginning in 1966, payroll taxes were collected for <abbr class="spell">HI</abbr>, generally from those who were also covered by the Social Security program (<abbr class="spell">SSA</abbr> 2008). Taxes were shared equally by the employer and the employee, and amounted to 0.7 percent of wages. This amount has increased over the years to the current combined tax of 2.9 percent. Today, the combined <abbr class="spell">OASDI</abbr> and <abbr class="spell">HI</abbr> payroll tax rate is 15.3 percent—7.65 percent each for the employer and employee.</p>
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<p>From 1966 through 1990, the <abbr class="spell">HI</abbr> payroll tax was collected on earnings up to the Social Security taxable maximum. Under Public Law (<abbr>P.L.</abbr>) 101-508, enacted in 1990, the taxable maximum for Medicare in 1991 was increased to $125,000 (the taxable maximum for Social Security that year was $53,400) and was to be indexed to average wages thereafter. However, <abbr title="Public Law">P.L.</abbr> 103-66 repealed the Medicare taxable maximum beginning in 1994, and required <abbr class="spell">HI</abbr> payroll taxes to be paid on all wages and self-employment earnings. This increased the amount of earnings reported to <abbr class="spell">SSA</abbr> for those who had earnings above the Social Security taxable maximum, and greatly increased the amount of self-employment earnings records in the <abbr class="spell">MEF</abbr>. All earnings that are subject to <abbr class="spell">OASDI</abbr> taxes are also subject to <abbr class="spell">HI</abbr> taxes; however, the reverse is not true. Earnings that are subject to payroll taxes for Medicare purposes, but are not subject to <abbr class="spell">OASDI</abbr> taxes, are referred to as Medicare-only or <span class="nobr"><abbr class="spell">HI</abbr>-taxable</span> earnings in the <abbr class="spell">MEF</abbr>. In addition, HI- or Medicare-covered earnings are from employment in jobs covered by Medicare, but not <abbr class="spell">OASDI</abbr>. Since 1994, <span class="nobr"><abbr class="spell">HI</abbr>-taxable</span> earnings in the <abbr class="spell">MEF</abbr> are equal to <span class="nobr">HI-covered</span> earnings because there is no longer an <abbr class="spell">HI</abbr> taxable maximum.</p>
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<p>Because the Medicare coverage rules are different from those for the <abbr class="spell">OASDI</abbr> program, the <abbr class="spell">MEF</abbr> contains information on earnings subject to the Medicare tax but not also to the <abbr class="spell">OASDI</abbr> tax. Theoretically, this should be the case only for workers with Medicare Qualified Government Employment (<abbr class="spell">MQGE</abbr>).<sup><a href="#mn10" id="mt10">10</a></sup> This includes federal government employees hired before January 1, 1984, and state and local government employees hired after March 31, 1986, or whose employment after this date is subject to special conditions of the Social Security Act (CFR 2008).<sup><a href="#mn11" id="mt11">11</a></sup> The wages paid to those under <abbr class="spell">MQGE</abbr> are classified in the <abbr class="spell">MEF</abbr> as <span class="nobr"><abbr class="spell">HI</abbr>-taxable</span> earnings. These earnings are used for Medicare purposes and do not qualify the worker for <abbr class="spell">OASDI</abbr> benefits, as they are not <abbr class="spell">OASDI</abbr>-taxable.</p>
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<h3>Self-Employment Earnings</h3>
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<p>As noted earlier, nonfarm and nonprofessional self-employed workers were added to the program by the 1950 Social Security Amendments (self-employed farm and professional workers were added later) (see Chart 1). Self-employed workers first paid taxes in 1951 at a rate that was less than the combined employer and employee rate for other covered workers. For example, in 1951 the combined Old-Age and Survivors Insurance (<abbr class="spell">OASI</abbr>) tax rate for employers and employees was 3.0 percent, while the <abbr class="spell">OASI</abbr> tax rate for the self-employed was 2.25 percent (<abbr class="spell">SSA</abbr> 2008). The Social Security Amendments of 1983 increased the self-employment tax rate to match the combined employee-employer Social Security and Medicare tax rates effective January 1, 1984 (General Accounting Office 1983). A temporary income tax credit reduced the effective tax rate from 1984 through 1989 (<abbr class="spell">SSA</abbr> 1990), and starting in tax year 1990, self-employed persons applied a factor of 92.35 percent (100 percent minus 7.65 percent) to their <abbr class="spell">IRS</abbr>-reported net earnings to determine their Social Security and Medicare taxable net earnings (<abbr class="spell">SSA</abbr> 2009c, Chapter 12).<sup><a href="#mn12" id="mt12">12</a></sup> This tax deduction provides similar Social Security and income tax treatment of employees, employers, and self-employed workers (<abbr class="spell">SSA</abbr> 1990). On their adjusted net earnings, self-employed workers pay a tax rate equivalent to the combined employer and employee <abbr class="spell">OASDI</abbr> and <abbr class="spell">HI</abbr> tax rate.<sup><a href="#mn13" id="mt13">13</a></sup></p>
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<p><abbr class="spell">SSA</abbr> obtains earnings information for the self-employed electronically from <abbr class="spell">IRS</abbr> Form 1040 Schedule <abbr class="spell">SE</abbr> (self-employment tax).<sup><a href="#mn14" id="mt14">14</a></sup> Before 1991, the <abbr class="spell">IRS</abbr> sent self-employment earnings data to <abbr class="spell">SSA</abbr> only when those earnings were reported as Social Security taxable. For a worker with both employment and self-employment earnings, payroll taxes are paid on the employment earnings first. Until 1991, if an individual's wages from employment reached or exceeded the <abbr class="spell">OASDI</abbr> taxable maximum, <abbr class="spell">SSA</abbr> would not collect any self-employment information for the worker during that year. If wages were less than the <abbr class="spell">OASDI</abbr> taxable maximum, then the employee was required to pay <abbr class="spell">OASDI</abbr> taxes on any self-employment income up to the <abbr class="spell">OASDI</abbr> taxable maximum. Therefore, <abbr class="spell">SSA</abbr> collected partial data reflecting self-employment income up to the <abbr class="spell">OASDI</abbr> taxable maximum. Starting in 1991, additional self-employment earnings—up to the Medicare taxable maximum—were added to the <abbr class="spell">MEF</abbr>. With the elimination of the Medicare taxable maximum in 1994, the <abbr class="spell">MEF</abbr> began including all reported self-employment income.</p>
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<h3>Deferred Compensation</h3>
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<p>Another change to the <abbr class="spell">MEF</abbr> resulted from the proliferation of deferred compensation. Deferred compensation is an arrangement in which a portion of an employee's wages are paid out in a year after that in which they are actually earned. This usually occurs with certain retirement plans such as <span class="nobr">401(k)s</span> and is usually done to defer the payment of income taxes. In 1984, earnings reports began to include elective deferrals for those workers with wages below the taxable maximum, although deferrals were not explicitly identified and the information was incomplete (Pattison and Waldron 2008).<sup><a href="#mn15" id="mt15">15</a></sup> As previously discussed, the Social Security taxable maximum is indexed to the growth rate in the national average wage. In 1989, <abbr title="Public Law">P.L.</abbr> 101-239 changed the calculation of the national average wage to include certain types of deferred-compensation plans for years after 1991.<sup><a href="#mn16" id="mt16">16</a></sup> Since 1990, <abbr class="spell">SSA</abbr> has collected additional information on the aggregate value of workers' deferred compensation from Form <span class="nobr">W-2</span> to include in the national average wage calculation, which is used to calculate the annual taxable maximum (and other wage-indexed amounts for the <abbr class="spell">OASDI</abbr> program).<sup><a href="#mn17" id="mt17">17</a></sup> Starting in 2004, <abbr class="spell">SSA</abbr> began to capture information on the specific type of deferred compensation (for example, a <span class="nobr">401(k),</span> <span class="nobr">403(b),</span> or <span class="nobr">457(b)</span> pension plan) and wages that were put into Health Savings Accounts (<abbr class="spell">HSA</abbr>s).<sup><a href="#mn18" id="mt18">18</a></sup> This more detailed deferred compensation and <abbr class="spell">HSA</abbr> information is now contained in the <abbr class="spell">MEF</abbr>.</p>
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<h3>Relevant Time Periods</h3>
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<p>Amendments to the Social Security Act have not only increased the number and types of workers covered by the program, they have also necessitated changing the types of earnings information that are collected by <abbr class="spell">SSA</abbr>. Other laws passed by Congress and technological changes have also shaped the <abbr class="spell">MEF</abbr> data. The development of the <abbr class="spell">MEF</abbr> can be divided into three significant time periods: <span class="nobr">1937–1950,</span> <span class="nobr">1951–1977,</span> and 1978 to date (see Chart 3).</p>
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<div class="chartCenter">
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<div class="chart700" style="width:750px">
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<div class="title" id="chart3">Chart 3.<br>Summary of earnings in the Social Security Master Earnings File</div>
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<div class="scrollChart"><img src="v69n3p29_chart3.gif" alt="Flowchart with text description below." width="750" height="387" /></div>
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<div class="altText"><a class="altTextToggle" href="">Show text description</a>
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<div class="align-left">
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<p class="noindent"><b>Text description for Chart 3.<br>Summary of earnings in the Social Security Master Earnings File</b></p>
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<p class="noindent"><span class="nobr">1937–1950:</span> Aggregate covered earnings</p>
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<p class="noindent"><span class="nobr">1951–1977:</span> Quarterly earnings data reported by employer</p>
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<p class="noindent">1978 to date: Annual wage, salary, and tip income (covered and noncovered) reported on Form <span class="nobr">W-2;</span> covered self-employment income reported on Form 1040 <abbr class="spell">SE</abbr> <sup>a</sup></p>
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<p class="noindent">1990 to date: Summary deferred compensation</p>
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<p class="noindent">1991 to date <sup>b</sup>: Taxable Medicare earnings above the taxable maximum</p>
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<p class="noindent">2004 to date: Detailed deferred compensation</p>
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</div>
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</div>
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<div class="firstNote">SOURCE: Michael Compson, Office of Research, Evaluation, and Statistics, Social Security Administration.</div>
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<div class="note">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.</div>
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<div class="lastNote">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.</div>
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</div>
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</div>
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<p class="noindent"><span class="h4">1937–1950</span>. Initially, taxable wage reports for individual workers were sent by the <abbr class="spell">IRS</abbr>' forerunner, the Bureau of Internal Revenue, to <abbr class="spell">SSB</abbr> and, later, to <abbr class="spell">SSA</abbr>. Reports were sent on a semiannual basis in 1937, and on a quarterly basis thereafter, for employers with workers covered by the program. These wages were reported for each worker up to the taxable maximum (Fay and Wasserman 1938). This information, sent to <abbr class="spell">SSB</abbr> on the Employer Report Schedule A (Form 941),<sup><a href="#mn19" id="mt19">19</a></sup> was then manually transferred to punch cards. The punch card data were entered onto the ledger accounts of individual wage earners and checked against employer totals for accuracy (Corson 1938).<sup><a href="#mn20" id="mt20">20</a></sup> Recordkeeping of earnings during this period involved the use of collating, sorting, card punching, accounting, and posting machines (Cronin 1985). Noncovered earnings were not reported to <abbr class="spell">SSA</abbr> in the early years of Social Security because they were not needed for program purposes. Owing to limited storage capacity and the prohibitive costs of converting early earnings data to an electronic format, data for 1937 to 1950 are only available as two aggregate numbers for each worker:<sup><a href="#mn21" id="mt21">21</a></sup> total Social Security taxable earnings for <span class="nobr">1937–1950</span> and total <abbr class="spell">QC</abbr>s for <span class="nobr">1947–1950.</span></p>
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<p>When needed, there are various procedures for establishing a count of <abbr class="spell">QC</abbr>s for this <span class="nobr">14-year</span> period. First, <abbr class="spell">SSA</abbr> counts <abbr class="spell">QC</abbr>s from 1951 forward. If those are insufficient to establish insured status, the <abbr class="spell">QC</abbr>s from 1947 to 1950 are considered, as well. If these do not provide enough quarters to be insured, then <abbr class="spell">SSA</abbr> allocates one <abbr class="spell">QC</abbr> for each $400 of covered earnings from 1937 to 1950.<sup><a href="#mn22" id="mt22">22</a></sup> If the individual is still not insured, <abbr class="spell">SSA</abbr> conducts a detailed earnings search of the microfilm records to determine the exact number of <abbr class="spell">QC</abbr>s. The individual is credited with a <abbr class="spell">QC</abbr> for any quarter in which he or she had $50 or more in covered earnings during this period; if he or she earned the taxable maximum in a year, four <abbr class="spell">QC</abbr>s (the most that can be earned each year) are credited.</p>
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<p class="noindent"><span class="h4">1951–1977</span>. The Social Security Amendments of 1950 changed the benefit calculation to increase monthly benefits payable (Cohen and Myers 1950). The new benefit calculation "put greater reliance on the use of individual yearly earnings totals" starting in 1951 (Cronin 1985). In addition, <abbr class="spell">SSA</abbr> began converting files to microfilm in the late 1940s and early 1950s and the installation of the first computer in 1956 greatly increased the use of magnetic tape at the agency (Cronin 1985). The final earnings records during this period contained detailed quarterly and summary earnings information on microfilm, including the claim or disability status of the individual (<abbr class="spell">SSA</abbr> <abbr title="no date">n.d.</abbr>). Earnings information for individual workers up to the <abbr class="spell">OASDI</abbr> taxable maximum continued to be reported quarterly by employers through 1977.<sup><a href="#mn23" id="mt23">23</a></sup> If an employee reached the taxable maximum during the year, the employer was not required to report any information on that employee in subsequent quarters. After 1951, if an employee's combined wages from two or more employers exceeds the taxable maximum, the record includes wages exceeding the maximum.<sup><a href="#mn24" id="mt24">24</a></sup> However, for 1951 to 1977, only the total annual earnings amount is contained in the <abbr class="spell">MEF</abbr>; in later years, the amounts for each employer are also available. Similarly, earnings from self-employment were added to any employee wages and recorded as a yearly total in the <abbr class="spell">MEF</abbr> during this period.</p>
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<p>Total <abbr class="spell">QC</abbr>s and the quarterly pattern in which wages were earned are also available for each year of data; however, <abbr class="spell">QC</abbr>s were allocated by different methods, depending on the type of earnings, during this period. For covered wages and tips, a <abbr class="spell">QC</abbr> was credited for each quarter in which the employee had $50 or more in earnings, up to four <abbr class="spell">QC</abbr>s a year. An employee with maximum covered earnings was credited with four <abbr class="spell">QC</abbr>s for the year. A self-employed individual would receive a <abbr class="spell">QC</abbr> for each $100 of self-employed income, up to four <abbr class="spell">QC</abbr>s a year; and a <abbr class="spell">QC</abbr> was allocated for each $100 of agricultural earnings (<abbr class="spell">SSA</abbr> 2008).<sup><a href="#mn25" id="mt25">25</a></sup></p>
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<p class="noindent"><span class="h4">1978 to date</span>. Under <abbr title="Public Law">P.L.</abbr> 95-216, beginning in 1978, <abbr class="spell">SSA</abbr> began collecting wage and salary information directly from employers on the Form <span class="nobr">W-2</span> Wage and Tax Statement on an annual basis. This reduced processing delays and the administrative burdens of reporting and collecting information quarterly. The switch to Form <span class="nobr">W-2</span> also meant that <abbr class="spell">SSA</abbr> had access to information, such as wages above the taxable maximum and wages from noncovered employment, it had not previously received. By the late 1970s, electronic capabilities had increased dramatically from the original punch cards and magnetic tape used by <abbr class="spell">SSA</abbr>, enabling the agency to store the additional <span class="nobr">W-2</span> information (see the Data Available section for the full list of variables contained in the <abbr class="spell">MEF</abbr> today). In 1978, most <span class="nobr">W-2</span> information was received in paper form and was keyed into the <abbr class="spell">SSA</abbr> earnings record system on magnetic tape at three data keying centers (Cronin 1985). As more employers began to submit their wage reports via electronic media, only one data processing center was needed. Today, employers can go directly to <abbr class="spell">SSA</abbr>'s Business Services Online<sup><a href="#mn26" id="mt26">26</a></sup> to submit <span class="nobr">W-2s</span> electronically and to request verification of employees' names and <abbr class="spell">SSN</abbr>s through the Social Security Number Verification System. Although some earnings information still comes to <abbr class="spell">SSA</abbr> in paper form, 81 percent of <span class="nobr">W-2s</span> in fiscal year 2007 were filed electronically by employers, thus reducing the administrative costs of entering and maintaining the earnings data (<abbr class="spell">SSA</abbr> 2007).</p>
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<p>A <abbr class="spell">QC</abbr> was earned for each $250 of reported covered earnings from all sources (such as wages, tips, and self-employment) up to the annual limit of four in 1978. Since 1979, the amount of earnings needed for each <abbr class="spell">QC</abbr> has increased annually, proportional to the national average wage. In 2009, a <abbr class="spell">QC</abbr> is earned for each $1,090 of covered earnings.</p>
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<h2>Posting Process</h2>
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<p>Before posting earnings data to an individual's record, <abbr class="spell">SSA</abbr> verifies that the name and <abbr class="spell">SSN</abbr> on the <span class="nobr">W-2</span> or self-employment income report match information in its Numerical Identification (Numident) file. Records in the Numident are established when an individual applies for an <abbr class="spell">SSN</abbr> by filling out an <span class="nobr"><abbr class="spell">SS</abbr>-5</span> form.<sup><a href="#mn27" id="mt27">27</a></sup> <abbr class="spell">SSA</abbr> enters information from the <span class="nobr"><abbr class="spell">SS</abbr>-5</span> into the Numident file, which contains each person's name, <abbr class="spell">SSN</abbr>, sex, self-reported race, birth date, and place of birth. Numident records are updated when an individual reports a name change (usually from marriage), requests a correction, asks for a replacement for a lost card, or dies. Verification and date of death comes from state vital records or from public reporting (claimants, family members, or funeral homes) and is stored in a separate record.</p>
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<p><abbr class="spell">SSA</abbr> receives information on employee wages from the employer on Form <span class="nobr">W-2</span> Wage and Tax Statement and Form <span class="nobr">W-3</span> Transmittal of Wage and Tax Statements, and on self-employment earnings from <abbr class="spell">IRS</abbr> data files derived from Schedule <abbr class="spell">SE</abbr> and the unreported wages and tips line item on Form 1040, <abbr>U.S.</abbr> Individual Income Tax Return.<sup><a href="#mn28" id="mt28">28</a></sup> Form <span class="nobr">W-2</span> currently contains the following information:</p>
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<ul>
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|
<li>Employee's <abbr class="spell">SSN</abbr></li>
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<li>Employer identification number (<abbr>EIN</abbr>)</li>
|
|
<li>Employer's name, address, and <abbr>ZIP</abbr> code</li>
|
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<li>Employee's name and address</li>
|
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<li>Wages, tips, and other compensation</li>
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<li>Federal income tax withheld</li>
|
|
<li>Social Security wages</li>
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<li>Social Security tax withheld</li>
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|
<li>Medicare wages and tips</li>
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<li>Medicare tax withheld</li>
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<li>Social Security tips</li>
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<li>Allocated tips</li>
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<li>Advance earned income credit (<abbr class="spell">EIC</abbr>) payment</li>
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<li>Dependent care benefits</li>
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<li>Nonqualified plan distributions</li>
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<li>Codes for reporting types of deferred compensation</li>
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<li>Checkboxes for statutory employee status, retirement plan participation, and third-party sick pay disburser status</li>
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<li>State and local income tax information</li>
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</ul>
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<p><abbr class="spell">SSA</abbr> stores some of the <span class="nobr">W-2</span> information as administrative data; most of it is sent to the <abbr class="spell">IRS</abbr>.</p>
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<p>The <span class="nobr">W-3</span> is a summary form that contains aggregate earnings information for all employees in the wage report. For <abbr class="spell">SSA</abbr> to accept the wage amounts on the <span class="nobr">W-2s,</span> their cumulative total must agree with the <span class="nobr">W-3.</span> If the data files from these forms balance against one another, the information can then be posted to individual earnings records. <abbr class="spell">SSA</abbr> receives information from employers and the <abbr class="spell">IRS</abbr> continuously; therefore the <abbr class="spell">MEF</abbr> is updated on a weekly basis.</p>
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<p>Each year, <abbr class="spell">SSA</abbr> processes about 245 million employee wage reports submitted by about 6.9 million employers (<abbr class="spell">SSA</abbr> 2009d). As noted earlier, in order for the earnings on these wage reports to be posted to the <abbr class="spell">MEF</abbr>, the combination of the name and <abbr class="spell">SSN</abbr> on Form <span class="nobr">W-2</span> must be matched to the Numident.<sup><a href="#mn29" id="mt29">29</a></sup> If either is different, <abbr class="spell">SSA</abbr> applies over 20 separate computer routines and other techniques to attempt to find matches for the initial mismatches. Approximately 90 percent of the wage reports received by <abbr class="spell">SSA</abbr> each year are posted to the <abbr class="spell">MEF</abbr> without difficulty. After the computerized routines are applied, approximately 96 percent of wage items are successfully posted to the <abbr class="spell">MEF</abbr> (<abbr class="spell">GAO</abbr> 2005).</p>
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<p>If the name and <abbr class="spell">SSN</abbr> do not match, even after <abbr class="spell">SSA</abbr> has performed its computer matching routines, the wages can not be credited to the individual's account. Instead, the earnings are placed in the Earnings Suspense File (<abbr class="spell">ESF</abbr>). The <abbr class="spell">ESF</abbr> retains unposted items until they can be correctly assigned and placed in the <abbr class="spell">MEF</abbr> with a valid name and <abbr class="spell">SSN</abbr>.<sup><a href="#mn30" id="mt30">30</a></sup> <abbr class="spell">SSA</abbr> performs additional operations annually to further attempt to match earnings to individuals' records. To ensure that workers have an opportunity to correct any discrepancies in their earnings records, <abbr class="spell">SSA</abbr> has since 1979 sent letters to all employees whose names and <abbr class="spell">SSN</abbr>s can not be matched. In 1994, <abbr class="spell">SSA</abbr> began also to send letters to employers who submit more than 10 <span class="nobr">W-2s</span> with nonmatching names and <abbr class="spell">SSN</abbr>s, when these represent more than 0.5 percent of the <span class="nobr">W-2s</span> they submit.<sup><a href="#mn31" id="mt31">31</a></sup> Additionally, beginning in 2000, all workers and former workers aged 25 or older receive an annual Social Security Statement that lists by year all Social Security and Medicare earnings that have been posted to the <abbr class="spell">MEF</abbr> to date.<sup><a href="#mn32" id="mt32">32</a></sup> These statements have led to earnings being corrected at earlier ages, when workers can provide evidence of the wages missing from or erroneously posted to their record. Remaining discrepancies can be corrected at the time of benefit application, when individuals scrutinize their earnings records to ensure all their earnings are being used to calculate their monthly benefit amount.</p>
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<p>As of October 2007, 275 million wage items for tax years 1937 to 2005 were in the <abbr class="spell">ESF</abbr>, amounting to $661 billion in wages for which Social Security taxes have been paid (<abbr class="spell">SSA</abbr> 2009b). Because <abbr class="spell">SSA</abbr> maintains these data for a long time, individuals with legitimate earnings missing from their earnings records can have them properly posted (there may also be legitimate earnings missing from earnings records that are not in the <abbr class="spell">ESF</abbr>).<sup><a href="#mn33" id="mt33">33</a></sup> Researchers using the <abbr class="spell">MEF</abbr> should understand that earnings records could be incomplete or contain extraneous earnings for certain individuals, and that there is no indicator to warn that an individual's earnings record is erroneous.</p>
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<h2>Data Available</h2>
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<p>Once <abbr class="spell">SSA</abbr> confirms that the employer- and <abbr class="spell">IRS</abbr>-reported name and <abbr class="spell">SSN</abbr> of a worker match those recorded in the Numident, his or her earnings are posted to the <abbr class="spell">MEF</abbr> Earnings Detail Segment, and the <abbr class="spell">MEF</abbr> Summary Segment is updated (Panis and others 2000).<sup><a href="#mn34" id="mt34">34</a></sup> The Summary Segment contains annual <abbr class="spell">OASDI</abbr>-taxable wages and tips and self-employment earnings from 1951 to the present; cumulative taxable earnings for <span class="nobr">1937–1950,</span> <span class="nobr">1951–1977,</span> and 1978 to date; annual information on <abbr class="spell">MQGE</abbr> from 1983 to date; cumulative <abbr class="spell">QC</abbr>s for <span class="nobr">1947–1950</span> and <span class="nobr">1951–1977;</span> annual <abbr class="spell">QC</abbr>s for <span class="nobr">1951–1977</span> (<abbr class="spell">QC</abbr>s from 1978 to date are computed using reported earnings); and railroad and military earnings indicators.<sup><a href="#mn35" id="mt35">35</a></sup> The Summary Segment also includes variables such as <abbr class="spell">SSN</abbr>, race, sex, date of birth, date of death,<sup><a href="#mn36" id="mt36">36</a></sup> an indicator of earnings prior to 1950, first year of earnings after 1950, and last year of earnings (Panis and others 2000). This segment summarizes all the <abbr class="spell">OASDI</abbr>- and <span class="nobr"><abbr class="spell">HI</abbr>-taxable</span> earnings since 1978 as reported in the Detail Segment and also contains all reported taxable earnings by tax year. Taxable earnings from more than one employer are summarized into one yearly total. For example, if an individual earned $20,000 from each of two different employers, the total earnings would be listed as $40,000 (thus individuals with more than one employer may have earnings that exceed the taxable maximum). The Summary Segment contains no information on employers.</p>
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<p>The Earnings Detail Segment includes annual <span class="nobr">W-2</span>–level data from each of a worker's employers since 1978, as well as self-employment earnings information from the Schedule <abbr class="spell">SE</abbr>. The <span class="nobr">W-2</span> information includes the employer identification number (<abbr>EIN</abbr>),<sup><a href="#mn37" id="mt37">37</a></sup> <abbr class="spell">OASDI</abbr> and Medicare taxable wages, and total wages reportable as <abbr class="spell">IRS</abbr>-taxable income on Form 1040 (currently shown in Box 1 of Form <span class="nobr">W-2,</span> this amount includes wages above the <abbr class="spell">OASDI</abbr> taxable maximum, noncovered wages, and deferred-compensation distributions, but does not include deferred-compensation contributions). Information from delinquent or corrected <span class="nobr">W-2s</span> <span class="nobr">(W-2c's)</span> is included in separate records in the Detail Segment.<sup><a href="#mn38" id="mt38">38</a></sup> Information from self-employment postings includes the <abbr class="spell">OASDI</abbr> and Medicare taxable earnings, but does not indicate deferred-compensation contributions. Detail Segment records also contain additional variables pertaining to types of posting. These include an Earnings Report Type (<abbr class="spell">ERT</abbr>) code, indicating earnings categories such as covered, noncovered, delinquent, self-employment, and unreported tips; and an Earnings Type of Employment (<abbr class="spell">EET</abbr>) code, which indicates employment categories such as regular, military, self-employed, agricultural, nonprofit, state and local government, household, railroad, <abbr class="spell">MQGE</abbr>, and workers with tip income (Panis and others 2000). As of December 2005, about <span class="nobr">three-fourths</span> of earnings in the <abbr class="spell">MEF</abbr> Detail Segment were taxable wages from Form <span class="nobr">W-2,</span> with the rest consisting of noncovered <span class="nobr">W-2</span> wages, self-employment income, and delinquent <span class="nobr">W-2</span> earnings. From 1978 through 2005, about <span class="nobr">three-quarters</span> of wages came from regular employment, while most of the rest came from tips and from employment in the military, state and local government, agriculture, households, and railroads (Pattison 2007).<sup><a href="#mn39" id="mt39">39</a></sup></p>
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<p>When the Detail Segment process was established in 1978, only two amounts were taken from the <span class="nobr">W-2:</span> <abbr class="spell">OASDI</abbr>-taxable earnings (to be added into each person's summary earnings record) and the <abbr class="spell">IRS</abbr>-taxable wage (to be reported on Form 1040 and used in calculating the national average wage). There are still only two dollar fields on each Detail Segment record; so, in order to handle the information available on more recent <span class="nobr">W-2s,</span> multiple records may be generated from a single <span class="nobr">W-2.</span> The initial detail posting, called the primary wage posting, will contain two dollar values: wages subject to federal income taxes (including amounts paid under deferred-compensation plans) and <abbr class="spell">OASDI</abbr>-taxable earnings. Additional <abbr class="spell">MEF</abbr> records are created for a <span class="nobr">W-2</span> if it includes earnings above the Social Security–taxable maximum in 1991 and later (the excess earnings would be <span class="nobr"><abbr class="spell">HI</abbr>-taxable</span>), deferred compensation in 1990 and later, or tips. Additional records are also created for corrected <span class="nobr">W-2s</span> <span class="nobr">(W-2c's).</span></p>
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<p>For example, in 2003, the <abbr class="spell">OASDI</abbr>-taxable maximum was $87,000 and for a worker earning $100,000, two records would be generated. The primary wage posting would show <abbr class="spell">IRS</abbr>-taxable earnings of $100,000 in the <abbr class="spell">IRS</abbr> taxable field and <abbr class="spell">OASDI</abbr>-taxable earnings of $87,000 in the <abbr class="spell">OASDI</abbr>/<abbr class="spell">HI</abbr> field. A secondary wage posting for <span class="nobr"><abbr class="spell">HI</abbr>-taxable</span> earnings would have $0 in the <abbr class="spell">IRS</abbr> field and $13,000 in the <abbr class="spell">OASDI</abbr>/<abbr class="spell">HI</abbr> field representing <span class="nobr"><abbr class="spell">HI</abbr>-taxable</span> earnings above the <abbr class="spell">OASDI</abbr>-taxable maximum. The <abbr class="spell">OASDI</abbr>/<abbr class="spell">HI</abbr> field can be used for other purposes as well, such as <abbr class="spell">OASDI</abbr>- and/or <span class="nobr"><abbr class="spell">HI</abbr>-taxable</span> tips. The <abbr class="spell">ERT</abbr> and <abbr class="spell">EET</abbr> indicators show the type of earnings and employment represented in each of the fields in each posting. Depending on the information in an individual's <span class="nobr">W-2,</span> there may be a single <abbr class="spell">MEF</abbr> detail record or there may be many records to account for multiple employers, earnings over the taxable maximum, or other types of earnings including tips, <abbr class="spell">HSA</abbr>s, or deferred compensation.</p>
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<h2>Limitations and Complexities</h2>
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<p>As shown above, the <abbr class="spell">SSA</abbr> Master Earnings File contains extensive historical data on <abbr>U.S.</abbr> earnings. However, as with all data sets—especially administrative data sets—there are some limitations and complexities that researchers must acknowledge (although it is important to note that these limitations do not preclude <abbr class="spell">SSA</abbr> from properly administering the program or determining benefit eligibility or benefit amounts). Foremost, earnings data were first collected for the sole purpose of computing Social Security benefits. In the earlier years, only data on earnings up to the <abbr class="spell">OASDI</abbr>-taxable maximum were collected because any earnings over this amount did not factor into the benefit formula. This is one limitation of the data prior to 1978. In addition, data on race in the <abbr class="spell">MEF</abbr> are limited to a single undated entry, which does not account for changes in race coding over time (Scott 1999). Another limitation arises from the existence of the <abbr class="spell">ESF</abbr>, which includes wage reports that could not be entered into the <abbr class="spell">MEF</abbr>. This means that not all earnings from 1937 to the present are included in the file. Lastly, there could be errors resulting from the employer failing to report earnings properly or in a timely manner, from clerical errors, or from data being keyed improperly.</p>
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<p>Some employer errors can be corrected by submitting a <span class="nobr">W-2c.</span> However, introducing corrected earnings into the <abbr class="spell">MEF</abbr> may create additional problems because the previous earnings posting does not get removed when a <span class="nobr">W-2c</span> is received. Instead, two new postings are created: one includes a negative amount to offset the original wage report, and the other includes the new, correct amount. For example, if a worker's original <span class="nobr">W-2</span> stated earnings of $20,000 and the <span class="nobr">W-2c</span> stated corrected earnings of $15,000, <abbr class="spell">SSA</abbr> would create two new postings, one reporting −$20,000 and the other reporting the new earnings amount of $15,000. Occasionally, a negative dollar amount can result if more than one correction is made to a worker's earnings. This can happen when both the worker and the employer try to correct a mistake, resulting in a double correction, or a correction is resubmitted while the original submission is still working its way through the system. (These instances were more common in the past, as modernization and enhancements to <abbr class="spell">SSA</abbr>'s computer systems have largely put an end to double corrections.) In addition, some employers may erroneously file a new <span class="nobr">W-2</span> instead of a <span class="nobr">W-2c</span> to correct a mistake. Internal <abbr class="spell">SSA</abbr> processes check for duplicate postings of the same amount; when detected, the original amount is then offset. However, if the amounts on the <span class="nobr">W-2s</span> differ, the new amount will be entered without offsetting the old amount, resulting in a false earnings total. The large majority of employers who file <span class="nobr">W-2c's,</span> however, do so correctly.</p>
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<p>Another issue arose beginning in 1978, when earnings information started to come to <abbr class="spell">SSA</abbr> annually on Form <span class="nobr">W-2.</span> Even after the switch, some state and local governments were still able to report their employees' earnings under the old quarterly system. Some reported under both the old and new systems. This resulted in some double postings for a few years because different <abbr>EIN</abbr>s were used under each system, with the quarterly system using a special <abbr>EIN</abbr> beginning with the digits 69 (to identify state and local government employers and earnings) and the annual system requiring a regular <abbr>EIN</abbr> (<abbr class="spell">IRS</abbr> 2009). Some state and local governments also used different <abbr>EIN</abbr>s for reporting to <abbr class="spell">SSA</abbr> and to the <abbr class="spell">IRS</abbr>. When different <abbr>EIN</abbr>s were used for each agency, some earnings were posted twice. This continued until tax year 1981, when <abbr class="spell">SSA</abbr> no longer allowed state and local governments to report earnings on a quarterly basis (Cronin 1985). Use of <abbr>EIN</abbr>s with the 69 prefix ended in 1986 (<abbr class="spell">IRS</abbr> 2009). <abbr class="spell">SSA</abbr> corrects duplicate earnings records when notified by affected employees.</p>
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<p>There are also some issues in the <abbr class="spell">MEF</abbr> data related to self-employment earnings. Total self-employment earnings reported by individuals and the total number of self-employed workers prior to 1978 can not be determined because of the way these data were collected by <abbr class="spell">SSA</abbr> (described above). In addition, self-employment earnings that were taxable by Medicare only were not recorded from 1991 through 1993. This was not discovered until 1994 and at that time only data from 1992 and 1993 could be recovered retroactively; for 1991, only self-employed earnings from delinquent reports are available. Therefore, complete self-employment income data for 1991 are not available. In addition, there may be limitations in the data reported to <abbr class="spell">SSA</abbr>, as they depend on the accuracy of data reported by self-employed individuals on <abbr class="spell">IRS</abbr> tax forms.</p>
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<h2>Uses of the Master Earnings File Data</h2>
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<p>The <abbr class="spell">MEF</abbr> data are used extensively, but are mainly used for calculating Social Security benefits for individuals and any auxiliary beneficiaries they may have.<sup><a href="#mn40" id="mt40">40</a></sup> First, the earnings data are used to determine if a person has sufficient <abbr class="spell">QC</abbr>s to qualify for benefits. <abbr class="spell">SSA</abbr> also uses earnings records from the <abbr class="spell">MEF</abbr> to calculate benefit amounts.<sup><a href="#mn41" id="mt41">41</a></sup> For benefit calculations, an individual's total taxable <abbr class="spell">OASDI</abbr> earnings for each year (including earnings from different employers and self-employment, military credits, and railroad earnings) are added together to determine total annual earnings up to the taxable maximum.<sup><a href="#mn42" id="mt42">42</a></sup> The annual earnings amounts are then indexed using the national average wage index (<abbr class="spell">AWI</abbr>) series, to ensure that benefits reflect the general rise in <abbr>U.S.</abbr> wages over the person's working lifetime.<sup><a href="#mn43" id="mt43">43</a></sup> The sum of indexed earnings in the years of highest earnings is then divided by the number of months in the computation period (35 years for retirement benefits, 35 or fewer for disability and survivors benefits). The result is called average indexed monthly earnings (<abbr>AIME</abbr>). <abbr>AIME</abbr> is then used in a formula to calculate monthly benefit amounts for <abbr class="spell">OASDI</abbr> beneficiaries.<sup><a href="#mn44" id="mt44">44</a></sup></p>
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<p>For individuals already receiving benefits, <abbr class="spell">MEF</abbr> records are used for several programmatic purposes. If a retiree has not reached his or her full retirement age and earns more than a specified amount in a year (in 2009, the amount is $14,160), benefits are reduced $1 for every $2 over the earnings limit (the reductions are offset with an increase in benefits when the retiree reaches full retirement age).<sup><a href="#mn45" id="mt45">45</a></sup> In addition, each year <abbr class="spell">SSA</abbr> completes an Automatic Earnings Reappraisal Operation (<abbr>AERO</abbr>) or a manual recomputation to determine if any new earnings have been posted to a beneficiary's record. If so, the <abbr class="spell">SSA</abbr> computer system recalculates the monthly benefit (as described above). New earnings exceeding those in one of the previous 35 highest years of earnings would change the beneficiary's <abbr>AIME</abbr>, resulting in higher benefits. The maintenance of earnings information before and even after an individual begins receiving benefits is vital for the operation of the program.</p>
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<p>In addition to program-specific uses, <abbr class="spell">MEF</abbr> data are used to create other files of interest to researchers. One significant example is the Continuous Work History Sample (<abbr class="spell">CWHS</abbr>). The <abbr class="spell">CWHS</abbr> is a <span class="nobr">1-percent</span> sample of all <abbr class="spell">SSN</abbr>s issued from 1937 to the current year.<sup><a href="#mn46" id="mt46">46</a></sup> It contains earnings and employment information derived from the <abbr class="spell">MEF</abbr>, demographic information derived from the Numident, and annual benefit data derived from the Master Beneficiary Record.<sup><a href="#mn47" id="mt47">47</a></sup> The <abbr class="spell">MEF</abbr> data for the <abbr class="spell">CWHS</abbr> are extracted annually in January, approximately 13 months after the end of the tax year, and are generally available in the spring of that year, after the file is validated (for example, the 2007 <abbr class="spell">CWHS</abbr> was pulled in January 2009 and will be available in mid-2009). The <abbr class="spell">CWHS</abbr> is broken into an active file (3.3 million records were in the 2006 file), which includes <abbr class="spell">SSN</abbr>s with any earnings in the <abbr class="spell">MEF</abbr>; and an inactive file (1.1 million records were in the 2006 file), which includes <abbr class="spell">SSN</abbr>s that have never had earnings posted to the <abbr class="spell">MEF</abbr>.<sup><a href="#mn48" id="mt48">48</a></sup> The <abbr class="spell">CWHS</abbr> is used by <abbr class="spell">SSA</abbr> researchers as well as by those at the Treasury Department and the Congressional Budget Office through Memoranda of Agreement (<abbr>MOA</abbr>). <abbr class="spell">IRS</abbr> law precludes its release to others (Buckler 1988).</p>
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<p>In addition to the <span class="nobr">1-percent</span> sample described above, the <abbr class="spell">CWHS</abbr> system produces two annual Employee-Employer (<abbr class="spell">EE-ER</abbr>) files, a Longitudinal Employee-Employer Data (<abbr>LEED</abbr>) file, and an annual Self-Employment (<abbr class="spell">SE</abbr>) file, all of which are <span class="nobr">1-percent</span> samples based on data contained in the <abbr class="spell">MEF</abbr>. Of the two <abbr class="spell">EE-ER</abbr> files, one contains covered wages only and the other contains both covered and noncovered wages (this includes nontaxable wages and <span class="nobr"><abbr class="spell">HI</abbr>-only</span> taxable wages and covered employment). The <abbr class="spell">EE-ER</abbr> files also contain age, sex, race, and deferred-compensation contributions variables. The importance of these files is that they show employee and employer location (county and state) and the employer's type of industry, since wages are reported at the employer level in the Detail Segment of the <abbr class="spell">MEF</abbr> (Panis and others 2000).<sup><a href="#mn49" id="mt49">49</a></sup> For each tax year, one version of the <abbr class="spell">EE-ER</abbr> is created when the data for the active <abbr class="spell">CWHS</abbr> are extracted and a second is created 2 years later, to incorporate any delinquent earnings data and to be added to the <abbr>LEED</abbr> file. The <abbr>LEED</abbr> file is a <span class="nobr">1-percent</span> longitudinal sample of the <abbr class="spell">EE-ER</abbr> records with data for <span class="nobr">1957–2004.</span><sup><a href="#mn50" id="mt50">50</a></sup> The industry data contained in the <abbr class="spell">CWHS</abbr> and <abbr class="spell">EE-ER</abbr> files come from the <abbr class="spell">IRS</abbr> Form <span class="nobr"><abbr class="spell">SS</abbr>-4</span> Application for an <abbr>EIN</abbr>, income tax returns, and from the Census Bureau.<sup><a href="#mn51" id="mt51">51</a></sup> These data are categorized according to the North American Industry Classification System (<abbr class="spell">NAICS</abbr>), which assigns industry codes for the United States, Canada, and Mexico (Census Bureau 2009). The <abbr>LEED</abbr> file is used for studies of workers in different geographic regions and different industries over time (Panis and others 2000). The <abbr class="spell">SE</abbr> file is an annual snapshot of initial self-employment postings to the <abbr class="spell">MEF</abbr> in the most recent earnings-processing year and contains data sent by <abbr class="spell">IRS</abbr> to <abbr class="spell">SSA</abbr>, which is not stored on the <abbr class="spell">MEF</abbr> but is useful for statistical and research purposes (such as geographic data, farm/nonfarm earnings splits, and use of optional reporting methods).</p>
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<p><abbr class="spell">MEF</abbr> data are also used for certain statistical publications and data files, such as <i>Earnings and Employment Data for Workers Covered by Social Security and Medicare, by State and County</i>; <i>Benefits and Earnings Public Use-File, 2004</i>; and certain tables in the <i>Annual Statistical Supplement to the Social Security Bulletin</i>.<sup><a href="#mn52" id="mt52">52</a></sup> A new <span class="nobr">public-use</span> earnings data file based on a <span class="nobr">1-percent</span> random sample of workers is currently being developed in <abbr class="spell">SSA</abbr>'s Office of Retirement and Disability Policy (<abbr class="spell">ORDP</abbr>) for dissemination on the Social Security web site. This file could be very useful for outside researchers who are interested in long-term <abbr>U.S.</abbr> earnings data. In addition, <abbr class="spell">SSA</abbr> has published many studies using <abbr class="spell">MEF</abbr> data.<sup><a href="#mn53" id="mt53">53</a></sup> As noted earlier, because the <abbr class="spell">MEF</abbr> contains tax return information, access is granted only according to terms of the Internal Revenue Code. The primary organizations that have been granted access to the <abbr class="spell">MEF</abbr> data for research purposes are the Census Bureau, the Department of Treasury, and the Congressional Budget Office. The University of Michigan obtained the consent of respondents to use <abbr class="spell">MEF</abbr> data for its Health and Retirement Study (<abbr class="spell">HRS</abbr>). Outside researchers have coauthored papers with <abbr class="spell">SSA</abbr> employees who have access to the data, or used Census Bureau data linked with <abbr class="spell">MEF</abbr> data after being granted access by both the <abbr class="spell">IRS</abbr> and the Census Bureau.<sup><a href="#mn54" id="mt54">54</a>,<a href="#mn55" id="mt55">55</a></sup></p>
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<h2>Conclusion</h2>
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<p>In 1938, John J. Corson, Director of the Bureau of <span class="nobr">Old-Age</span> Insurance, noted "[a]s a byproduct of its necessary operations, the records of the Bureau of <span class="nobr">Old-Age</span> Insurance will in [the] future provide a wealth of new sources of information regarding the working population of the United States." The Master Earnings File was created for the purpose of calculating benefits, but as Corson predicted, it has been used more broadly for improving the administration of the Social Security program. The earnings data available at <abbr class="spell">SSA</abbr> are used by researchers, analysts, and others to understand the past and present <abbr>U.S.</abbr> working populations. As with any large administrative data set, the <abbr class="spell">MEF</abbr> has some limitations of which researchers should be aware. Nevertheless, it is the premier source of earnings data on <abbr>U.S.</abbr> workers.</p>
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<div id="notes">
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<h2>Notes</h2>
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<p> <a href="#mt1" id="mn1">1</a> <abbr class="spell">IRS</abbr> tax data are governed by section 6103 of the Internal Revenue Code. <abbr class="spell">SSA</abbr> can use it only to record wages and cannot share it with any other federal agency. For more information, see <a href="https://www.irs.gov/government-entities/federal-state-local-governments/disclosure-laws">http://www.irs.gov/govt/fslg/article/0,,id=158487,00.html</a>. For general information on the Master Earnings File, see the Privacy Act Notice at <a href="/privacy/sorn.html">http://www.socialsecurity.gov/foia/bluebook/60-0059.htm</a>.</p>
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<p> <a href="#mt2" id="mn2">2</a> Some earnings data derived from the <abbr class="spell">MEF</abbr> are available only to a restricted set of researchers, while other earnings data are more widely available. For more information on access to the <abbr class="spell">MEF</abbr>, see the Uses of the Master Earnings File Data section of this article.</p>
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<p> <a href="#mt3" id="mn3">3</a> For the full text of the original Social Security Act of 1935, see <a href="/history/35actinx.html">http://www.socialsecurity.gov/history/35actinx.html</a>.</p>
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<p> <a href="#mt4" id="mn4">4</a> For information on how an employer withholds these taxes from an employee's pay today, see <abbr class="spell">IRS</abbr> Publication 15, available at <a href="https://www.irs.gov/pub/irs-pdf/p15.pdf">http://www.irs.gov/pub/irs-pdf/p15.pdf</a>.</p>
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<p> <a href="#mt5" id="mn5">5</a> Other groups not covered by the original Social Security Act include agricultural workers, domestic servants, casual laborers, maritime workers, employees of federal and state governments or their instrumentalities, those workers employed after reaching age 65, and employees of religious, educational, charitable, and nonprofit organizations (<abbr class="spell">SSB</abbr> 1938). For more information on the history of coverage, see Myers (1993).</p>
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<p> <a href="#mt6" id="mn6">6</a> The major groups that are not covered include civilian federal employees hired before January 1, 1984; railroad workers; certain employees of state and local governments who are covered under their employers' retirement system; domestic workers and farm workers whose earnings do not meet certain minimum requirements; and persons with very low net earnings from self-employment.</p>
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<p> <a href="#mt7" id="mn7">7</a> The taxable maximum was set by statute for the years <span class="nobr">1937–1974</span> and <span class="nobr">1979–1981</span> (<abbr class="spell">SSA</abbr> 2009a). Amounts for all other years were determined under the automatic adjustment provision of the Social Security Act, established in the 1972 Social Security Amendments (for more information on these amendments, see <a href="/history/1972amend.html">http://www.socialsecurity.gov/history/1972amend.html</a>). For the full list of taxable maximum changes, as well as Social Security and Medicare tax rates and the rates paid by the self-employed up to the maximum amounts, see <abbr class="spell">SSA</abbr> (2008), Table 2.A3, available at <a href="/policy/docs/statcomps/supplement/2008/2a1-2a7.pdf">http://www.socialsecurity.gov/policy/docs/statcomps/supplement/2008/2a1-2a7.pdf</a>.</p>
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<p> <a href="#mt8" id="mn8">8</a> For more information on <abbr class="spell">QC</abbr>s, see <a href="/OACT/COLA/QC.html">http://www.socialsecurity.gov/OACT/COLA/QC.html</a>.</p>
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<p> <a href="#mt9" id="mn9">9</a> Part C (Medicare Advantage) and Part D (Prescription Drug Plan) have since been added to the Medicare program. For more information on Medicare, see <a href="/pubs/EN-05-10043.pdf">http://www.socialsecurity.gov/pubs/10043.pdf</a>.</p>
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<p><a href="#mt10" id="mn10">10</a> There are instances in the <abbr class="spell">MEF</abbr> when nongovernmental workers appear to have <abbr class="spell">MQGE</abbr> wages because their reported Medicare taxable wages are greater than their Social Security wages and the latter is less than the <abbr class="spell">OASDI</abbr> taxable maximum. These appear to be reporting errors, but are stored on the <abbr class="spell">MEF</abbr> as if they are Medicare wages in excess of Social Security wages.</p>
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<p><a href="#mt11" id="mn11">11</a> For more information on these federal government employees, see <a href="/benefits/retirement/planner/fedgovees.html">http://www.socialsecurity.gov/retire2/fedgovees.htm</a> and for more information on state and local government employees, see <a href="/slge/">http://www.socialsecurity.gov/slge/</a>.</p>
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<p><a href="#mt12" id="mn12">12</a> Because Social Security benefits are based on an individual's earnings record, self-employed workers receive less credit for earnings in 1990 and later because of the factor applied to adjust their <abbr class="spell">IRS</abbr> net earnings by the amounts of <abbr class="spell">OASDI</abbr> and Medicare payroll taxes due.</p>
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<p><a href="#mt13" id="mn13">13</a> For an explanation of how the self-employed pay Social Security and Medicare taxes, see <a href="/pubs/EN-05-10022.pdf">http://www.socialsecurity.gov/pubs/10022.pdf</a>. These taxes are collected under the Self-Employment Contributions Act (<abbr>SECA</abbr>).</p>
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<p><a href="#mt14" id="mn14">14</a> For more information on the Form 1040 Schedule <abbr class="spell">SE</abbr>, see <a href="https://www.irs.gov/pub/irs-pdf/i1040sse.pdf">http://www.irs.gov/pub/irs-pdf/i1040sse.pdf</a>.</p>
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<p><a href="#mt15" id="mn15">15</a> The <abbr class="spell">MEF</abbr> <abbr class="spell">OASDI</abbr> taxable earnings field only includes deferred compensation for Social Security–covered workers whose earnings are below the taxable maximum from 1984 forward. However, <abbr class="spell">MEF</abbr> began to record deferred compensation for all groups in a separate field in 1990. For more information on deferred compensation, see Pattison and Waldron (2008).</p>
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<p><a href="#mt16" id="mn16">16</a> For more information on average wages for indexing during this time period, see Clingman and Kunkel (1992).</p>
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<p><a href="#mt17" id="mn17">17</a> For more information on the national <abbr class="spell">AWI</abbr> and its use at <abbr class="spell">SSA</abbr>, see <a href="/OACT/COLA/AWI.html">http://www.socialsecurity.gov/OACT/COLA/AWI.html</a>.</p>
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<p><a href="#mt18" id="mn18">18</a> <span class="nobr">403(b)</span> plans cover most tax-exempt organizations and <span class="nobr">457(b)</span> plans cover public sector employees and nongovernmental tax-exempt entities, including hospitals and unions. <span class="nobr">408(k)</span> plans (for organizations with fewer than 25 employees) and <span class="nobr">501(c)</span> <span class="nobr">18(d)</span> plans (employee-funded pension trusts) are also distinguished in the <abbr class="spell">MEF</abbr> data. For more information on <abbr class="spell">HSA</abbr>s, see http://www.treas.gov/offices/public-affairs/hsa/pdf/all-about-HSAs_072208.pdf.</p>
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<p><a href="#mt19" id="mn19">19</a> Form 941 was the employer's quarterly federal tax return. Form 942 (employer's quarterly tax return for household employees) and Form 943 (employer's annual tax return for agricultural employees) were also submitted to <abbr class="spell">SSB</abbr> when applicable.</p>
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<p><a href="#mt20" id="mn20">20</a> To view an original Social Security wage record, see <a href="/history/account6.html">http://www.socialsecurity.gov/history/account6.html</a>.</p>
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<p><a href="#mt21" id="mn21">21</a> When detailed information is obtained for an individual prior to 1978, this is posted to the Detail Segment of the <abbr class="spell">MEF</abbr>. Therefore, information on the Detail Segment for this time period is incomplete and is only posted in special situations (usually if needed for benefit applications). For more information on the Detail Segment of the <abbr class="spell">MEF</abbr>, see the Data Available section of this article.</p>
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<p><a href="#mt22" id="mn22">22</a> The <abbr class="spell">MEF</abbr> includes data on <abbr class="spell">QC</abbr>s for 1937 to present and for 1950 to present. Calculating the difference enables the determination of the cumulative <abbr class="spell">QC</abbr>s for <span class="nobr">1937–1950.</span></p>
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<p><a href="#mt23" id="mn23">23</a> An optical scanner was installed at <abbr class="spell">SSA</abbr> in 1966 to read and automatically transfer to magnetic tape a significant percentage of the typewritten paper wage reports sent in by employers (Cronin 1985).</p>
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<p><a href="#mt24" id="mn24">24</a> For example, the taxable maximum was $9,000 in 1972, so if a worker earned $5,500 from one employer and $5,000 from another employer, he would have total earnings in the <abbr class="spell">MEF</abbr> above the taxable maximum for that year.</p>
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<p><a href="#mt25" id="mn25">25</a> There are optional reporting procedures for the self-employed that allow them to claim $1,600 in earnings for Social Security purposes even in years when they had net earnings of less than $400. This allows them to remain insured for disability and retirement purposes (the <abbr class="spell">QC</abbr>s are allocated to specific quarters to best advantage the claimant). Effective for tax year 2008, the maximum amount reportable using the optional method of reporting will be equal to the amount needed for four <abbr class="spell">QC</abbr>s in a given year. For more information, see <a href="/pubs/EN-05-10022.pdf">http://www.socialsecurity.gov/pubs/10022.pdf</a>.</p>
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<p><a href="#mt26" id="mn26">26</a> See <a href="/bso">http://www.socialsecurity.gov/bso/bsowelcome.htm</a>.</p>
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<p><a href="#mt27" id="mn27">27</a> Form <span class="nobr"><abbr class="spell">SS</abbr>-5</span> is available at <a href="/forms/ss-5.pdf">http://www.socialsecurity.gov/online/ss-5.pdf</a>. Originally, <abbr class="spell">SSN</abbr>s were used strictly to establish and maintain a worker's earnings record. However, as the use of the <abbr class="spell">SSN</abbr> expanded for tax and banking purposes, people began acquiring <abbr class="spell">SSN</abbr>s at earlier ages. In 1987, <abbr class="spell">SSA</abbr> began the enumeration-at-birth (<abbr class="spell">EAB</abbr>) program in which a parent or legal guardian can request an <abbr class="spell">SSN</abbr> for a child as part of the birth registration process (Streckewald 2005). A small percentage of <abbr class="spell">SSN</abbr>s are still requested by working-age and older persons, mostly immigrants.</p>
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<p><a href="#mt28" id="mn28">28</a> For information on the Forms <span class="nobr">W-2</span> and <span class="nobr">W-3,</span> see <a href="https://www.irs.gov/pub/irs-pdf/iw2w3.pdf">http://www.irs.gov/pub/irs-pdf/iw2w3.pdf</a>. For information on Form 1040, see <a href="https://www.irs.gov/pub/irs-pdf/i1040gi.pdf">http://www.irs.gov/pub/irs-pdf/i1040.pdf</a>.</p>
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<p><a href="#mt29" id="mn29">29</a> There are two exceptions to posting earnings to the <abbr class="spell">MEF</abbr> when the name and <abbr class="spell">SSN</abbr> match the Numident: when the Numident record contains a death indicator, and when the Numident date of birth indicates that the individual is under age 7.</p>
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<p><a href="#mt30" id="mn30">30</a> In addition to the exceptions mentioned in the preceding endnote, the <abbr class="spell">ESF</abbr> also contains postings for individuals who claim that earnings on their record are not their own.</p>
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<p><a href="#mt31" id="mn31">31</a> For more information on these <span class="nobr">No-Match</span> Letters, see <abbr class="spell">SSA</abbr> (2009d).</p>
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<p><a href="#mt32" id="mn32">32</a> For information on the Social Security Statement, see <a href="/mystatement/">http://www.socialsecurity.gov/mystatement/</a>.</p>
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<p><a href="#mt33" id="mn33">33</a> For example, in the past, some workers applied for and received a new <abbr class="spell">SSN</abbr> when they lost or forgot their original <abbr class="spell">SSN</abbr>, thereby separating their earnings record under the old number from that of the new one. In the 1980s, <abbr class="spell">SSA</abbr> established a procedure to determine if multiple numbers have been issued to a single person. Currently, <abbr class="spell">SSA</abbr> has software that will search the Numident file to prevent issuing a second number to an individual.</p>
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<p><a href="#mt34" id="mn34">34</a> The Detail Segment includes a Posted Section that contains earnings that are subject to Social Security or Medicare taxes and an Unposted Section that contains related earnings information (such as railroad wages, noncovered earnings, deferred compensation, and <abbr class="spell">HSA</abbr> contributions). The Unposted Section has no amounts in the Social Security or Medicare taxable fields. For more information on the Posted and Unposted Detail Segments, see Panis and others (2000).</p>
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<p><a href="#mt35" id="mn35">35</a> Individuals who have military service earnings from active duty from 1957 through 2001 can receive special extra earnings credits that are added to their Social Security records. These credits may qualify individuals for higher Social Security benefits. For more information on military credits, see <a href="/benefits/retirement/planner/military.html">http://www.socialsecurity.gov/retire2/military.htm</a>.</p>
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<p><a href="#mt36" id="mn36">36</a> The date of death on the <abbr class="spell">MEF</abbr> is considered unreliable after 1978. The Master Beneficiary Record and Numident are the preferred sources for this variable (Panis and others 2000).</p>
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<p><a href="#mt37" id="mn37">37</a> For more information on <abbr>EIN</abbr>s, see <a href="https://www.irs.gov/pub/irs-pdf/p1635.pdf">http://www.irs.gov/pub/irs-pdf/p1635.pdf</a>.</p>
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<p><a href="#mt38" id="mn38">38</a> Delinquent <span class="nobr">W-2s</span> are those posted after the January that is 13 months after the end of an earnings tax year. For more information on <span class="nobr">W-2c's,</span> see the Limitations and Complexities section of this article and http://www.irs.gov/pub/irs-pdf/iw2cw3c.pdf.</p>
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<p><a href="#mt39" id="mn39">39</a> Researchers and staff in <abbr class="spell">SSA</abbr>'s Office of Retirement and Disability Policy (<abbr class="spell">ORDP</abbr>) do not use the full <abbr class="spell">MEF</abbr>. Instead they receive a query that contains two summary earnings research files: adjusted earnings (up to the <abbr class="spell">OASDI</abbr> taxable maximum) and nonadjusted earnings. These files do not contain all of the variables described in the Data Available section. The Office of Research, Evaluation, and Statistics (<abbr class="spell">ORES</abbr>), a division of <abbr class="spell">ORDP</abbr>, has a procedure to obtain a subset of data from the Summary Segment through a finder system that will retrieve data for specific <abbr class="spell">SSN</abbr>s. A similar procedure is used to retrieve data from the Detailed Segment. <abbr class="spell">ORES</abbr> stores the data in a format that summarizes the data for a given <abbr class="spell">SSN</abbr> by year and <abbr>EIN</abbr>.</p>
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<p><a href="#mt40" id="mn40">40</a> Safeguards are established in accordance with the <abbr class="spell">SSA</abbr> Systems Security Handbook to protect individuals' records. Employees with access to records have been notified of criminal sanctions for unauthorized disclosure of information about individuals. Magnetic tapes or other files with personal identifiers are retained in secured storage areas accessible only to authorized personnel. Microdata files prepared for research and analysis are purged of personal identifiers and are subject to procedural safeguards to assure anonymity.</p>
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<p><a href="#mt41" id="mn41">41</a> If an individual has earnings records under two <abbr class="spell">SSN</abbr>s, they are combined for the purpose of calculating benefits.</p>
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<p><a href="#mt42" id="mn42">42</a> If an individual had some railroad earnings, but not enough to qualify for Railroad Retirement benefits, these earnings would apply toward his or her Social Security benefit. For more information on railroad benefits, see Whitman (2008).</p>
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<p><a href="#mt43" id="mn43">43</a> Information from the <abbr class="spell">MEF</abbr> is used to calculate the <abbr class="spell">AWI</abbr> series for 1951 to present, as mentioned earlier. For more information on <abbr class="spell">AWI</abbr>'s origins and initial construction, see Donkar (1981). To see how the <abbr class="spell">MEF</abbr> data were used in calculating the <abbr class="spell">AWI</abbr> series, see <a href="/OACT/COLA/oldawidata.html">http://www.socialsecurity.gov/OACT/COLA/oldawidata.html</a> for the <span class="nobr">1973–1984</span> period and <a href="/OACT/COLA/awidevelop.html">http://www.socialsecurity.gov/OACT/COLA/awidevelop.html</a> for the <span class="nobr">1985–2007</span> period.</p>
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<p><a href="#mt44" id="mn44">44</a> For more information on how benefits are calculated using <abbr>AIME</abbr>, see <a href="/OACT/ProgData/retirebenefit2.html">http://www.socialsecurity.gov/OACT/ProgData/retirebenefit2.html</a>.</p>
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<p><a href="#mt45" id="mn45">45</a> A separate earnings test applies for the year in which a person reaches full retirement age. For example, for an individual reaching full retirement age in 2009, benefits are reduced $1 for every $3 of earnings above $37,680. The earnings test applies only until the month that full retirement age is attained. For more information on the retirement earnings test, see <a href="/OACT/COLA/rtea.html">http://www.socialsecurity.gov/OACT/COLA/rtea.html</a>.</p>
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<p><a href="#mt46" id="mn46">46</a> For the list of variables contained in the <abbr class="spell">CWHS</abbr>, see Panis and others (2000). For more information on the <abbr class="spell">CWHS</abbr>, see Smith (1989) and the Privacy Act Notice at <a href="/privacy/sorn.html">http://www.socialsecurity.gov/foia/bluebook/60-0159.htm</a>.</p>
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<p><a href="#mt47" id="mn47">47</a> For more information on the Master Beneficiary Record, see the Privacy Act Notice at <a href="/privacy/sorn.html">http://www.socialsecurity.gov/foia/bluebook/60-0090.htm</a>.</p>
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<p><a href="#mt48" id="mn48">48</a> The <abbr class="spell">CWHS</abbr> is currently modernizing, which may change the output file structure.</p>
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<p><a href="#mt49" id="mn49">49</a> If earnings information comes to <abbr class="spell">SSA</abbr> electronically, the employee's address is used, but the employer's address is used for earnings information submitted on paper. For the self-employed, the address listed on Form 1040 is used. Prior to 1980, the employer's address was always used. The <abbr class="spell">MEF</abbr> does not record geographic codes.</p>
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<p><a href="#mt50" id="mn50">50</a> There is a <span class="nobr">2-year</span> lag between the data in the <abbr class="spell">EE-ER</abbr> file and the data in the <abbr>LEED</abbr> file.</p>
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<p><a href="#mt51" id="mn51">51</a> Because the industry data are Census Bureau data, <abbr class="spell">SSA</abbr> researchers who access the data must be Special Sworn Status employees and have their projects approved by the Census Bureau. For more information, see <a href="https://www.census.gov/programs-surveys/ces/about.html">http://www.ces.census.gov/index.php/ces/cmshome</a>.</p>
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<p><a href="#mt52" id="mn52">52</a> See <a href="/policy/docs/statcomps/eedata_sc/2004/index.html">http://www.socialsecurity.gov/policy/docs/statcomps/eedata_sc/2004/index.html</a>, <a href="/policy/docs/microdata/earn/index.html">http://www.socialsecurity.gov/policy/docs/microdata/earn/index.html</a>, and <a href="/policy/docs/statcomps/supplement/2008/supplement08.pdf">http://www.socialsecurity.gov/policy/docs/statcomps/supplement/2008/supplement08.pdf</a>, respectively.</p>
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<p><a href="#mt53" id="mn53">53</a> For a full listing of these and other <abbr class="spell">SSA</abbr> studies, see <a href="/policy/research.html?keyword=data">http://www.socialsecurity.gov/policy/research_sub100.html#sub101</a>.</p>
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<p><a href="#mt54" id="mn54">54</a> As previously noted, the use of earnings data is governed by section 6103 of the Internal Revenue Code. For Census Bureau approval, projects must meet a purpose in Title 13 Chapter 5 of the <abbr>U.S.</abbr> Code. For more information, see <a href="https://www.census.gov/programs-surveys/ces/about.html">http://www.ces.census.gov/index.php/ces/researchguidelines</a>.</p>
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<p><a href="#mt55" id="mn55">55</a> Two examples of this type of work include the papers "Uncovering the American Dream: Inequality and Mobility in Social Security Earnings Data Since 1937" by Wojciech Kopczuk, Emmanuel Saez, and Jae Song (<a href="https://www.nber.org/papers/w13345">http://www.nber.org/papers/w13345</a>) and "The Mis-Measurement of Permanent Earnings: New Evidence from Social Security Earnings Data" by Bhashkar Mazumder (http://www.chicagofed.org<wbr>/publications<wbr>/workingpapers<wbr>/papers<wbr>/Wp2001-24.pdf).</p>
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</div>
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<div id="references">
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<h2>References</h2>
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<p>Buckler, Warren. 1988. Commentary: Continuous Work History Sample. <i>Social Security Bulletin</i> <span class="nobr">51(4):</span> 12 and 56.</p>
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<p>Census Bureau. 2009. North American Industry Classification System (<abbr class="spell">NAICS</abbr>). Available at <a href="https://www.census.gov/eos/www/naics/">http://www.census.gov/epcd/www/naics.html</a>.</p>
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<p>Clingman, Michael D., and Jeffrey L. Kunkel. 1992. Average wages for <span class="nobr">1985–1990</span> for indexing under the Social Security Act. Actuarial Note <abbr title="Number">No.</abbr> 133. Baltimore, <abbr title="Maryland">MD</abbr>: Social Security Administration, Office of the Chief Actuary. Available at <a href="/OACT/NOTES/note133.html">http://www.socialsecurity.gov/OACT/NOTES/note133.html</a>.</p>
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<p>[<abbr class="spell">CFR</abbr>] Code of Federal Regulations. 2008. <i>§406.15 Special provisions applicable to Medicare qualified government employment</i>. 42 <abbr class="spell">CFR</abbr> <abbr title="Chapter">Ch.</abbr> <abbr title="four">IV</abbr>. Subpart C—Premium Hospital Insurance. Available at <a href="http://www.gpo.gov/fdsys/pkg/CFR-2008-title42-vol2/pdf/CFR-2008-title42-vol2-sec406-15.pdf">http://edocket.access.gpo.gov/cfr_2008/octqtr/pdf/42cfr406.15.pdf</a>.</p>
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<p>Cohen, Wilbur J., and Robert J. Myers. 1950. Social Security Act Amendments of 1950: A summary and legislative history. <i>Social Security Bulletin</i> <span class="nobr">13(10):</span> <span class="nobr">3–14.</span> Available at <a href="/history/1950amend.html">http://www.socialsecurity.gov/history/1950amend.html</a>.</p>
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<p>Corson, John J. 1938. Administering Old-Age Insurance. <i>Social Security Bulletin</i> <span class="nobr">1(5):</span> <span class="nobr">3–6.</span> Available at <a href="/history/corson538.html">http://www.socialsecurity.gov/history/corson538.html</a>.</p>
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<p>Cronin, Michael A. 1985. Fifty years of operations in the Social Security Administration. <i>Social Security Bulletin</i> <span class="nobr">48(6):</span> <span class="nobr">14–26.</span> Available at <a href="/history/cronin.html">http://www.socialsecurity.gov/history/cronin.html</a>.</p>
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<p>Donkar, Eli N. 1981. Average wages for indexing under the Social Security Act and the automatic determinations for <span class="nobr">1979–81.</span> Actuarial Note <abbr title="Number">No.</abbr> 103. Baltimore, <abbr title="Maryland">MD</abbr>: Social Security Administration, Office of the Chief Actuary. Available at <a href="/OACT/NOTES/note1980s/note103/">http://www.socialsecurity.gov/OACT/NOTES/note1980s/note103/</a>.</p>
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<p>Fay, Joseph L., and Max J. Wasserman. 1938. Accounting operations of the Bureau of <span class="nobr">Old-Age</span> Insurance. <i>Social Security Bulletin</i> <span class="nobr">1(6):</span> <span class="nobr">24–28.</span> Available at <a href="/history/fay638.html">http://www.socialsecurity.gov/history/fay638.html</a>.</p>
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<p>General Accounting Office. 1983. <i>Self-employed fiscal year taxpayers can receive an advantage compared to self-employed calendar year taxpayers at the Social Security Trust Funds' expense</i>. Report <abbr title="number">No.</abbr> <abbr class="spell">GAO</abbr>-83-45. Washington, <abbr class="spell">DC</abbr>: Government Printing Office. Available at http://archive.gao.gov/d48t13/121836.pdf.</p>
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<p>[<abbr class="spell">GAO</abbr>] Government Accountability Office. 2005. <i>Better coordination among federal agencies could reduce unidentified earnings reports</i>. Report <abbr title="number">No.</abbr> <abbr class="spell">GAO</abbr>-05-154. Washington, <abbr class="spell">DC</abbr>: Government Printing Office. Available at <a href="https://www.gao.gov/assets/gao-05-154.pdf">http://www.gao.gov/new.items/d05154.pdf</a>.</p>
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<p>[<abbr class="spell">IRS</abbr>] Internal Revenue Service. 2009. <i>Internal Revenue Manual 21.7.13 Assigning Employer Identification Numbers (<abbr>EIN</abbr>s). </i>Retrieved August 12, 2009 at http://www.irs.gov/irm/part21/irm_21-007-013r.html.</p>
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<p>Myers, Robert J. 1993. <i>Social Security, fourth edition</i>. Philadelphia, <abbr title="Pennsylvania">PA</abbr>: Pension Research Council.</p>
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<p>Panis, Constantijn, Ronald Euller, Cynthia Grant, Melissa Bradley, Christine E. Peterson, Randall Hirscher, and Paul Steinberg. 2000. <i><abbr class="spell">SSA</abbr> Program Data User's Manual</i>. Baltimore, <abbr title="Maryland">MD</abbr>: Social Security Administration.</p>
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<p>Pattison, David. 2007. Internal working notes on the raw <abbr class="spell">MEF</abbr> Detail Segment. Washington, <abbr class="spell">DC</abbr>: Social Security Administration, Office of Retirement and Disability Policy.</p>
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<p>Pattison, David, and Hilary Waldron. 2008. Trends in elective deferrals of earnings from <span class="nobr">1990–2001</span> in Social Security administrative data. Research and Statistics Note <abbr title="number">No.</abbr> 2008-03. Available at <a href="/policy/docs/rsnotes/rsn2008-03.html">http://www.socialsecurity.gov/policy/docs/rsnotes/rsn2008-03.html</a>.</p>
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<p>Scott, Charles G. 1999. Identifying the race or ethnicity of <abbr class="spell">SSI</abbr> recipients. <i>Social Security Bulletin</i> <span class="nobr">62(4):</span> <span class="nobr">9–20.</span> Available at <a href="/policy/docs/ssb/v62n4/v62n4p9.pdf">http://www.socialsecurity.gov/policy/docs/ssb/v62n4/v62n4p9.pdf</a>.</p>
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<p>[<abbr class="spell">SSA</abbr>] Social Security Administration. 1990. <i>Annual Statistical Supplement to the Social Security Bulletin, 1990</i>. Washington, <abbr class="spell">DC</abbr>: <abbr class="spell">SSA</abbr>.</p>
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<p>———. 2007. Performance and accountability report for fiscal year 2007, performance section. Available at http://www.socialsecurity.gov/finance/2007/Performance_Section.pdf.</p>
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<p>———. 2008. <i>Annual Statistical Supplement to the Social Security Bulletin, 2008</i>. Washington, <abbr class="spell">DC</abbr>: <abbr class="spell">SSA</abbr>. Available at <a href="/policy/docs/statcomps/supplement/2008/supplement08.pdf">http://www.socialsecurity.gov/policy/docs/statcomps/supplement/2008/supplement08.pdf</a>.</p>
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<p>———. 2009a. Contribution and benefit base. Available at <a href="/OACT/COLA/cbb.html">http://www.socialsecurity.gov/OACT/COLA/cbb.html</a>.</p>
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<p>———. 2009b. Office of Audit Fiscal Year 2009 Work Plan. Baltimore, <abbr title="Maryland">MD</abbr>: <abbr class="spell">SSA</abbr>, Office of Inspector General. Available at http://www.socialsecurity.gov/oig/ADOBEPDF/workplan2009.pdf.</p>
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<p>———. 2009c. <i>Online Social Security Handbook: Your Basic Guide to the Social Security Programs. </i>Available at <a href="/OP_Home/handbook/handbook.html">http://www.socialsecurity.gov/OP_Home/handbook/handbook.html</a>.</p>
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<p>———. 2009d. Overview of Social Security employer no-match letters process. Available at http://www.socialsecurity.gov/legislation/nomatch2.htm.</p>
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<p>———. 2009e. What does <abbr>FICA</abbr> mean and why are Social Security taxes called <abbr>FICA</abbr> contributions? Available at http://www.socialsecurity.gov/mystatement/fica.htm.</p>
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<p>———. <abbr title="no date">n.d.</abbr> Recordkeeping in the Division of Accounting Operations. Washington, <abbr class="spell">DC</abbr>: <abbr class="spell">SSA</abbr>, Bureau of Old-Age and Survivors Insurance.</p>
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<p>[<abbr class="spell">SSB</abbr>] Social Security Board. 1938. 1938 Advisory council report—President's letter of transmittal to the Congress. Available at <a href="/history/reports/38advisepres.html">http://www.socialsecurity.gov/history/reports/38advisepres.html</a>.</p>
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<p>———. 1944. <i>Social Security Yearbook</i>. Washington, <abbr class="spell">DC</abbr>: Social Security Board.</p>
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<p>Smith, Creston M. 1989. The Social Security Administration's Continuous Work History Sample. <i>Social Security Bulletin</i> <span class="nobr">52(10):</span> <span class="nobr">20–28.</span></p>
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<p>Streckewald, Frederick G. 2005. Testimony before the House Committee on Ways and Means, Subcommittee on Social Security. <i>First in a series of subcommittee hearings on Social Security number high-risk issues </i>(November 1). 109th <abbr title="Congress">Cong.</abbr>, 1<sup>st</sup> <abbr title="session">sess.</abbr> Committee on Ways and Means Serial <abbr title="number">No.</abbr> 109-40. Available at <a href="/legislation/testimony_110105.html">http://www.socialsecurity.gov/legislation/testimony_110105.html</a>.</p>
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<p>Whitman, Kevin. 2008. An overview of the Railroad Retirement Program. <i>Social Security Bulletin</i> <span class="nobr">68(2):</span> <span class="nobr">41–51.</span> Available at <a href="/policy/docs/ssb/v68n2/v68n2p41.html">http://www.socialsecurity.gov/policy/docs/ssb/v68n2/v68n2p41.html</a>. </p>
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