What is a 'Transfer Payment'

A transfer payment, in the United States, is a one-way payment to a person for which no money, good, or service is given or exchanged. Transfer payments are made to individuals by the federal government through various social benefit programs. These types of payments are executed by the United States to individuals through programs such as Social Security.

BREAKING DOWN 'Transfer Payment'

A transfer payment is a process used by governments as a way to redistribute money through programs such as old age or disability pensions, student grants and unemployment compensation. Transfer payments, however, do not include subsidies that are paid to domestic farmers, manufacturers and exporters, even though they are technically a one-way payment to a person on behalf of the government.

Government transfer payments, although no services are performed, are considered to be a component of personal income. These payments can be made at the federal, state and local level of governments.

What Are Transfer Payments?

Government transfer payments span a wide range of uses and organizations. The funds for these payments also come from many different sources. However, the most common form of transfer payment is retirement and disability insurance benefits. These payments are made to those who qualify for OASDI benefits, railroad retirement and disability benefits, workers compensation programs and others.

Medical benefits are the second most common form of transfer payments. These types of benefits are government payments made through intermediaries to beneficiaries of medical care. Specifically, medical benefits come from either public assistance medical care or military medical insurance benefits. Public assistance is received by low-income individuals and payments come through the federally assisted, state-run Medicaid program and the Children's Health Insurance Program (CHIP). Military insurance is provided to military personnel through the TriCare Management Program.

Unemployment insurance is perhaps the third most common type of government transfer payments. This insurance includes state unemployment, federal unemployment and other organizations of unemployment compensation. Veterans' benefits are also a fairly common form of transfer payment. Transfer payments that surround these types of benefits are made up of veterans' pension and disability benefits, veterans' life insurance benefits and other types of veteran assistance.

Finally, education and training assistance is considered a type of government transfer payment. This government assistance consists of higher education student assistance, interest payments on student loans and state educational assistance. The combination of these benefits help individuals at all levels of education afford school. They also help people from all types of backgrounds. From Individuals who may only need a loan to people who need more assistance, all people can be helped with these transfer payments.

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