TN 5 (09-82)

RM 03146.001 Legislative History of the Trust Fund Certification Letter

Prior to 1950, each Internal Revenue Service (IRS) District Director's Office accounted for all social security tax receipts (including penalties, interest and additional taxes), and upon receipt immediately credited such monies to the Social Security Administration (SSA) Trust Fund. While this method enabled SSA to benefit immediately from all monies received, it had several drawbacks for both agencies. IRS ound the "to the penny" accounting system extremely expensive to administer. For SSA, the system presented two difficulties: first, while cash flow out of the Trust Fund occurred at periodic intervals on a predictable basis, cash flow into the Fund fluctuated considerably and irregularly; and second, SSA received no money for employers who had forwarded individual wage data, but then did not pay their taxes.

Both Agencies petitioned Congress to change the law to alleviate these problems. Congress did so in the 1950 amendments. These provided that social security taxes to be transferred to the Trust Funds would be computed by applying the appropriate tax rate to the wage and self-employment records established and maintained by the Secretary of Health and Human Services (HHS, formerly HEW) and as certified by him to the Secretary of the Treasury. This solved IRS's administrative cost problem and in effect meant that SSA's Trust Fund would be credited upon the basis of employer tax liability, not payment. In addition, the law provided that money was to be transferred on an estimated, periodic (“from time to time”, Sec 201(a)) basis, and that such estimated transfers would be adjusted to the actual taxes computed on the basis of the reocrd maintained by the Secretary of HHS. This made the cash flow into the Fund as regular and predictable as the outflow. In practice, this developed into a system whereby, for any given tax reporting quarter, an estimate of money to be collected was made, that money was then apportioned on a daily basis, and each day the appropriate portion was transferred from the General Fund of the Treasury to the SSA Trust Fund. This transferred total for that quarter was then reconciled to the certified wage and self-employment data maintained by the Secretary of HHS and an appropriate adjustment (either increase or decrease) was made to the Trust Fund.

When the Disability and Health Insurance Trust Funds were created, the same tax transfer principles described above were applied.