The Social Security Act created three separate benefit programs, not one

The Social Security Act of 1935 created three distinct programs that still exist today: Old-Age Insurance (now called Social Security retirement), Unemployment Insurance, and Aid to Dependent Children (now called Temporary Assistance for Needy Families). The law also set up matching grants to states for Aid to the Blind and Aid to the Elderly. These were not one unified program — they were separate systems with different funding sources, may be able to access rules, and purposes.

President Franklin D. Roosevelt signed the Act on August 14, 1935, during the Great Depression. At that time, roughly one in four Americans was unemployed, and most older people had no income at all. The law was designed to address immediate poverty and create a system where workers would pay into a fund during their working years and draw from it in retirement.

The Act did not cover all workers. Farm workers, domestic workers, and the self-employed were excluded from the start. These exclusions meant that Black Americans, who made up a large share of agricultural and domestic work, were largely left out of the program's protections for decades.

Key Takeaways

  • The 1935 Act created Old-Age Insurance (now Social Security retirement), Unemployment Insurance, and Aid to Dependent Children as three separate programs with different rules and funding.
  • Workers and employers both paid into the Old-Age Insurance fund through payroll taxes, which became the foundation of today's Social Security system.
  • The law excluded farm workers, domestic workers, and the self-employed, which meant many Black Americans and other groups did not receive coverage until decades later.
  • Unemployment Insurance was administered by states using federal funds, not run as a single national program.
  • The Act created the Social Security Board, a new federal agency, to oversee the programs and manage the trust fund.

How Old-Age Insurance worked when it started

Under the original 1935 law, workers and their employers each paid a tax of 1 percent on wages up to $3,000 per year. This money went into a trust fund. When a worker turned 65, they could claim a monthly benefit based on how much they had paid in and how long they had worked.

The first monthly benefit was paid in January 1940 to Ida May Fuller, a retired schoolteacher from Vermont. She had paid $24.75 into the system and received $22.54 per month. The program was designed to be self-sustaining — the taxes paid by current workers would fund the benefits of retirees, and the trust fund would hold reserves.

The 1935 Act did not include disability benefits or survivor benefits. A worker who became disabled before 65 received nothing. If a worker died, their family received nothing. These additions came later, in 1956 (disability) and 1939 (survivor benefits for widows and children).

Unemployment Insurance as a state-run system

The Unemployment Insurance program created by the 1935 Act was not a single national program. Instead, the federal government taxed employers at a rate of 3 percent on payroll, then gave most of that money back to states as grants. Each state designed its own unemployment program, set its own benefit levels, and decided how long benefits would last.

This structure meant that unemployment benefits varied dramatically by state. A worker in one state might receive $15 per week for 12 weeks, while a worker in another state received $10 per week for 8 weeks. This variation still exists today, though the federal government now sets some minimum standards.

Employers who paid into the state system could receive a credit against their federal tax, which gave states an incentive to set up their own programs quickly. By 1937, all 48 states had unemployment insurance in place.

Aid to Dependent Children and other assistance programs

The 1935 Act created Aid to Dependent Children (ADC), a program that gave federal matching grants to states to help support children whose fathers were dead, disabled, or absent. The federal government would match state spending dollar-for-dollar, up to a limit. Like Unemployment Insurance, each state set its own benefit levels and rules.

The law also created matching grant programs for Aid to the Blind and Aid to the Elderly. These were smaller programs, but they established the principle that the federal government would share the cost of state assistance to poor people in specific categories.

ADC was the most controversial part of the 1935 Act. Many states used the program to enforce racial segregation and to deny benefits to families they deemed "unfit." The program was later renamed Aid to Families with Dependent Children (AFDC) in 1962, and it eventually became the foundation for today's Temporary Assistance for Needy Families (TANF).

The payroll tax system that funded Old-Age Insurance

The 1935 Act introduced the payroll tax, a deduction taken directly from workers' paychecks. This was a new idea in American taxation. The tax was withheld by employers and sent to the federal government, which deposited it into the Old-Age Insurance Trust Fund.

The payroll tax rate started at 1 percent for workers and 1 percent for employers in 1937. It has increased many times since then. As of 2024, the rate is 6.2 percent for workers and 6.2 percent for employers on wages up to a certain cap (the cap changes each year).

The payroll tax created a direct link between what workers paid and what they received. This made Social Security politically different from other welfare programs — it was framed as insurance that workers had earned, not charity. This framing has shaped how Americans view the program for nearly 90 years.

Who was left out and why it mattered

The 1935 Act excluded farm workers, domestic workers, and the self-employed. These exclusions were not accidental. Southern members of Congress, who represented agricultural states, insisted on excluding farm and domestic workers because most of those workers were Black, and Southern politicians wanted to prevent Black workers from receiving federal benefits.

As a result, roughly 65 percent of Black workers were excluded from Social Security when the program started. Black women who worked as domestic servants or farm laborers — the most common jobs available to them — could not build up Social Security credits. This exclusion lasted until 1950 for farm workers and 1954 for domestic workers.

The exclusions meant that many Black Americans who reached retirement age had no Social Security income and had to rely on state welfare programs, which were even more limited and stigmatized. This gap in coverage contributed to wealth inequality that persists today.

The Social Security Board and how the program was managed

The 1935 Act created the Social Security Board, a new federal agency with three members appointed by the President. The Board was responsible for setting up the system, collecting payroll taxes, maintaining records of workers' earnings, and paying benefits. It also oversaw the Unemployment Insurance grants to states.

The Board had to build an entirely new infrastructure. It created a system to assign workers a Social Security number, track their earnings year by year, and calculate their benefits when they turned 65. This was done with paper records and mechanical calculators — computers did not exist yet.

The Social Security Board later became the Social Security Administration (SSA) in 1946. The SSA still manages Social Security today, though it now also handles Medicare, Supplemental Security Income, and other programs.

Changes made to the Act in its first 15 years

The 1935 Act was amended several times before 1950. The most important changes were in 1939, when Congress added survivor benefits. Under the 1939 amendments, the widow and children of a deceased worker could receive benefits, even if the worker had not yet reached 65.

The 1939 amendments also changed how benefits were calculated. Instead of basing benefits purely on how much a worker had paid in, the new formula gave larger benefits to lower-wage workers. This made the program more redistributive — it was no longer purely insurance, but also included an element of need-based assistance.

In 1950, Congress expanded coverage to include farm workers and domestic workers (though with some restrictions). This was the first major step toward covering all workers, though some groups remained excluded until later.

Frequently Asked Questions

Why did the Social Security Act exclude farm and domestic workers?

Southern members of Congress insisted on these exclusions because most farm and domestic workers were Black, and Southern politicians wanted to prevent Black workers from receiving federal benefits. The exclusions were removed in 1950 for farm workers and 1954 for domestic workers, but this meant Black Americans lost decades of earning credits toward retirement benefits.

Did the 1935 Act include disability benefits?

No. The original 1935 Act only provided benefits at age 65. Disability benefits were added in 1956, and survivor benefits for widows and children were added in 1939. These expansions made the program broader than the original "Old-Age Insurance" name suggested.

How much did workers have to pay into Social Security when it started?

Workers and employers each paid 1 percent of wages up to $3,000 per year, starting in 1937. This meant a worker earning $3,000 per year paid $30 into the system. The tax rate has increased many times since then and is now 6.2 percent for workers and employers each.

Was Unemployment Insurance run the same way as Old-Age Insurance?

No. Old-Age Insurance was a federal program funded by payroll taxes. Unemployment Insurance was a state-run program that received federal grants. Each state set its own benefit levels and duration, which is why unemployment benefits varied widely by state then and still do today.

What happened to Aid to Dependent Children after 1935?

ADC remained a state-run program with federal matching grants. It was renamed Aid to Families with Dependent Children (AFDC) in 1962 and eventually became Temporary Assistance for Needy Families (TANF) in 1996. The program still exists today but with stricter time limits and work requirements.